Dividend Stock Wednesday: PepsiCo Inc (PEP)
- 8 Comment
 |
Note: I use the Stock Selection Guide Software and its methodologies from the CSA to perform the bulk of my analysis on stocks. This is not a recommendation to buy a stock – it is my analysis only. Please do your own research.
Although I tend to prefer Coke products, I must admit that I do frequently partake in Pepsi products – not just the soft drinks but also the potato chips and the oatmeal I eat for breakfast. As I own Coca-Cola in my dividend portfolio, I like to look at Pepsi from time to time to see if I should also be adding this one!
Company Profile:
From MSN Money:
PepsiCo, Inc. (PepsiCo) is a global snack and beverage company. PepsiCo manufactures, markets and sells a variety of salty, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods. It has four divisions: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International and Quaker Foods North America.
Revenue and EPS Graph
Click to EnlargeSummary:
PEP’s revenue profile is not a spectacular uptrend that I typically like to see. In fact it was a bit choppy in 1996 through to 2001 as they tried to diversify into different businesses such as Pizza Hut and KFC. The last few years have been a bit better in terms of consistency but the overall revenue picture is not great with a historical compound growth rate for revenue of only 3.6%. Given, Pepsi is a huge company but I would rather see revenues growing at least 5%. That being said, I took a more aggressive stance on projecting revenue growth due to this recent performance. I have estimated revenue growth at 8% which means that revenues in 2011 are projected at $51,628 (m).
The earnings picture is a much more favorable, especially since 1999. The 10 year historical growth rate has been 10.8%. If it were not for the period from 1996 to 1999, the earnings picture would be spectacular. However, I am encourage by this more recent performance and am estimating PEP to grow earnings at a rate of 7.9% over the next 5 years. My projected earnings per share amount in 2011 is $4.37.
Dividends
Click to EnlargeSummary:
From 1997 to 2003 Pepsi’s dividend increase track record was steady by very slow. Then in 2003 the company put the peddle to the metal and dividend increases skyrocketed. I want to see the company provide these current dividend increases over the next couple of years before I get too comfortable with the company.
The current dividend yield of 1.99% is high compared to its 10 year historical average dividend yield of 1.6%. As I like to see current dividend yields higher than the 10 year average this is a positive indicator. The yield for PEP is slightly lower than the yield on the S&P 500 Index, which is currently at 2.00%. I would rather see a stock’s dividend yield to be significantly higher than SPY’s.
Valuation
Click to EnlargeSummary:
The stock selection guide allows an investor to come up with a valuation range for the stock based on historical prices, dividend returns, historical share price returns, and risk. It does this through formula that determines an upside and downside price (return / risk) for the stock. My inputs for the stock are as follows:
Revenue Growth Rate: 8%
EPS Growth Rate: 7.9%
Projected Upside P/E: 22.0
Dividend Return: 1.6%
Relative P/E: 0.93 (indicated the stock is slightly lower than historical averages)
Provision for a decline in the current stock price: 20%
Based on these inputs and the analysis completed by the software, my buy zone for the stock is $60.00 to $72.05. Given the current share price of $75.92 on November 27, 2007, I do not consider PEP to be a buy.
Disclosure: The Dividend Guy does not own shares in PEP. This is my analysis of the stock and is not investment advice. Do your own research.
You are interested in dividend investing? Check out my Free Dividend Investing eBook and don't forget to sign-up to my RSS Feeds!
Similar posts:
8 Comments on this post
Trackbacks
-
moneygardener said:
I would not hesitate to buy PEP if it was under pressure, but currently this stock is in the statosphere with PG CL and KO when it comes to valuation.
November 28th, 2007 at 2:23 pm -
Aaron said:
I think it is correct to say that PEP is certainly not a cheap stock at this point, but I do think for the long run it is a great stock to own. Management is doing extremely well with executing their growth strategy.
November 28th, 2007 at 7:55 pm -
Frank said:
Pepsi’s management is re-orging for the future through international sales. The company is growing faster then KO. KO is trading at at PE of 27. PEP at 20.5. I would take PEP up to $100.
November 29th, 2007 at 7:14 am -
David J Phillips said:
I agree that PEP is overvalued. Investors ought not fall into the ‘value trap.’ That is, given “historical P/E” a stock might be undervalued. For example: Your input: “Relative P/E: 0.93 (indicated the stock is slightly lower than historical averages).” If growth rate is slowing–such as in maturing markets–historical P/E comparisons are irrelevant, for forward P/E multiple is destined to contract.
But thanks for the analysis!
Regards,
David J Phillips, Publisher
http://www.10Qdetective.blogspot.comNovember 29th, 2007 at 3:13 pm
[...] Dividend Guy presents Dividend Stock Wednesday: PepsiCo Inc (PEP) posted at The Dividend Guy [...]
Miller Time Stratumseind Eindhoven…
And so for the first and last time I bought Dr. Pepper Berries & Cream soda. The taste breakdown is this:…
bad credit car dealerships…
In the last week, I have been focusing on settling a number of matters before I go east for a few days for the Horatio Alger ceremony. I’ ve been working on my speech, which will contain lessons learned during my lifetime and which are important for …
affiliate advertising programs…
Barclays, Tesco, HSBC, Nat West and HBOS are some examples of loan providers that have increased their interest rates to some percent. Nationwide said past week,“ We are planning to increase the price by 1 percent on all of our personal loan products…