PepsiCo, Inc. (PEP): Our Calculation of Intrinsic Value

Core Viewpoint - PepsiCo, Inc. is a leading player in the global beverages and convenient foods market, demonstrating strong revenue growth and resilience despite economic challenges [2][5]. Company Profile - PepsiCo boasts a diverse portfolio with well-known brands such as Pepsi, Gatorade, Lay's, and Quaker, supported by a vast distribution network [2]. - The company maintains strong pricing power and continues to innovate, expand internationally, and focus on premiumization [2]. - Challenges include inflationary pressures and shifting consumer preferences, but PepsiCo's scale and brand loyalty help sustain cash flow and shareholder returns [2]. DCF Analysis - Discount Rate: 10% - Terminal Growth Rate: 3% - WACC: 10% - Forecasted Free Cash Flows (in billions USD): - 2025: $7.5B → PV: $6.82B - 2026: $7.9B → PV: $6.56B - 2027: $8.3B → PV: $6.30B - 2028: $8.7B → PV: $6.06B - 2029: $9.1B → PV: $5.82B - Total Present Value of FCFs = $31.56B [3]. - Terminal Value Calculation using perpetuity growth model: - TV = (9.1 × 1.03) ÷ (0.10 − 0.03) = $134.0B - Present Value of Terminal Value = $83.89B [3]. Enterprise Value - Enterprise Value = Total Present Value of FCFs + Present Value of Terminal Value = $31.56B + $83.89B = $115.45B [3]. - Net Debt: - Cash: $9.27B - Total Debt: $44.95B - Net Debt = $35.68B [4]. - Equity Value: - Equity Value = Enterprise Value - Net Debt = $115.45B - $35.68B = $79.77B [4]. - Shares Outstanding: ~1.37B - Intrinsic Value per Share = $58 [4]. Conclusion - PepsiCo is characterized as a strong consumer-staples franchise with predictable cash flows and a competitive advantage [5]. - The stock appears to be trading above its intrinsic valuation, suggesting that the market is pricing in expectations for sustained growth and margin expansion [5]. - For value investors, PepsiCo may be viewed as a quality compounder rather than a deep value buy [5][6].