Fundamental analysis of Pepsico, July 10, 2017

Update:

The day after publishing this we figured out that the company presented their Earnings.

The earnings came in better than anticipated and we can now make estimated guesses for next year’s earnings.

We think they will come in around $4.50 per share which equates to a forward P/E of 25.3.

That is still far too expensive for my taste.

Yesterday interestingly the share went down 0.5 per cent to $113.74.

Valuation:

At $115 and a trailing P/E value of 26.5 the Pepsico share is expensive. Over a period of three years, the P/E ratio is even higher at 28.2. Because of their high degree of intangible assets the Book value is negative so a measure like Price to book does not make sense.

Balance sheet:

PepsiCo has a Working capital of $6 billion but the Working capital to debt is low at only 0.1. The Debt to equity ratio is extraordinarily high at 5.6.

In all, PepsiCo’s balance sheet could look better.

Free cash flow and dividend:

The company has a Free cash flow of $7.4 billion which equates to $5 per share. Of this they both buy back outstanding shares and pay a good dividend of $2.96 (2.6 per cent). The earnings look stable.

PepsiCo has been paying out uninterrupted and increasing dividends for more than 25 consecutive years.

Conclusion:

At 26.5 times trailing earnings PepsiCo is too expensive for my taste. At these prices I would call it a SELL.

If you would like to learn more about fundamental analysis you can do that here.

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