Pepsico Evaluation
VALUATION AND RECOMMENDATION:
After reviewing all available data, we recommended BUY rating on PepsiCo, Inc.
By applying full information forecast, PepsiCo, Inc as of December 31, 2007 was $110.99. The stock market price on the same date was $75.49. We believe PepsiCo stock is undervalued.
Three evaluation methods are used in evaluation process – ReOI , AOIG, and DCF. We get same result on all three methods. Simple valuation method is also used, we reached a comparable result of $110.62.
KEY DRIVER’S FORECAST
WACC is forecasted at 7.32 using CAPM. In the last 5 years, PepsiCo maintained sales growth rate above 7.5% annually. We expect the growth rate will gradually reduce from 9.8% in 2008 to 4.5% after 2013. Asset turnover will be constant at 2.319. Core sales profit margin will remain 11%. After adjustment of one-time items, we estimate the effective tax rate to be 30.52%. We excluded unusual operating income factors from our analysis, and expected the aggregated value will zero out in long term. Other core operation income will increase of 3.5%.
RISK ANALYSIS
Our evaluation is based on conservative forecast of future economic condition. If factors such as currency exchange rates, commodity prices, and business environment fluctuate, we should adjust our evaluation accordingly. 1. Introduction
PepsiCo Inc. (NYSE: PEP), with revenues of more than $39 billion and over 185,000 employees, is a large conglomerate with interests in manufacturing, marketing and selling a wide variety of carbonated and non-carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods. Besides the Pepsi-Cola brands (including Mountain Dew), the company owns the brands Quaker Oats, Gatorade, Frito-Lay, SoBe, Naked, and Tropicana1.
1.1 Divisions
The company consists of PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International (PI). Some of PepsiCo 's brand names are more than 100-years-old, but the corporation is
After reviewing all available data, we recommended BUY rating on PepsiCo, Inc.
By applying full information forecast, PepsiCo, Inc as of December 31, 2007 was $110.99. The stock market price on the same date was $75.49. We believe PepsiCo stock is undervalued.
Three evaluation methods are used in evaluation process – ReOI , AOIG, and DCF. We get same result on all three methods. Simple valuation method is also used, we reached a comparable result of $110.62.
KEY DRIVER’S FORECAST
WACC is forecasted at 7.32 using CAPM. In the last 5 years, PepsiCo maintained sales growth rate above 7.5% annually. We expect the growth rate will gradually reduce from 9.8% in 2008 to 4.5% after 2013. Asset turnover will be constant at 2.319. Core sales profit margin will remain 11%. After adjustment of one-time items, we estimate the effective tax rate to be 30.52%. We excluded unusual operating income factors from our analysis, and expected the aggregated value will zero out in long term. Other core operation income will increase of 3.5%.
RISK ANALYSIS
Our evaluation is based on conservative forecast of future economic condition. If factors such as currency exchange rates, commodity prices, and business environment fluctuate, we should adjust our evaluation accordingly. 1. Introduction
PepsiCo Inc. (NYSE: PEP), with revenues of more than $39 billion and over 185,000 employees, is a large conglomerate with interests in manufacturing, marketing and selling a wide variety of carbonated and non-carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods. Besides the Pepsi-Cola brands (including Mountain Dew), the company owns the brands Quaker Oats, Gatorade, Frito-Lay, SoBe, Naked, and Tropicana1.
1.1 Divisions
The company consists of PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB) and PepsiCo International (PI). Some of PepsiCo 's brand names are more than 100-years-old, but the corporation is