Linked here is a detailed quantitative analysis of PepsiCo, Inc. (PEP). Below are some highlights from the above linked analysis:
Company Description: PepsiCo, Inc. (PepsiCo) is a global snack and beverage company. The Company manufactures, markets and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
Other: PEP is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. PEP's global market positions and stable end markets produce consistent and strong cash flows. The company continues to find domestic and international growth opportunities. Compared to it peers, PEP's product innovation strategy is considered trend-setting for the industry. Though carbonated soft drinks remain the most popular beverage, PEP recognizes that non-carbonated soft drinks are a faster growing category. The company is focusing on the health and wellness trends. It has eliminated trans fats from many of its snack foods, and is introducing "good for you" foods under the Quaker Oats brand. Risks include the highly competitive and very mature nature of it products, also with more exposure to foreign markets, political and currency risks also increase.
Conclusion: PEP did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks PEP as a 3 Star-Hold.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $65.62 before PEP's NPV MMA Differential fell to the $500 that I like to see for a stock with 37 consecutive years of dividend increases. At that price the stock would yield 2.70%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.3%. This dividend growth rate is lower than the the 7.6% used in this analysis, thus providing a margin of safety. PEP has a risk rating of 1.00 which classifies it as a low risk stock.
Like its competition Coca-Cola (KO), PEP's Free Cash Flow Payout, currently at 70%, tends to remain higher than the 60% level that I prefer. However, this is mitigated to an extent by relatively low debt levels and predictable cash flows. PEP is a stock I will buy, as my allocation allows and when it dips below its buy price of $55.10. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in PEP (3.3% of my Income Portfolio).
What are your thoughts on PEP?