logo
  Join        Login             Stock Quote

Pepsico, Inc. (PEP) Dividend Stock Analysis

 November 08, 2012 11:35 AM
 


Linked here is a detailed quantitative analysis of Pepsico, Inc. (PEP). Below are some highlights from the above linked analysis:

Company Description: PepsiCo, Inc. is a major international producer of branded beverage and snack food products.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

[Related -Microsoft Corporation (MSFT) Earnings Preview: What To Watch In Q2 Results?]

1. Avg. High Yield Price

2. 20-Year DCF Price

3. Avg. P/E Price

4. Graham Number

PEP is trading at a premium to all four valuations above. Since PEP's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 9.9% premium to its calculated fair value of $62.86. PEP did not earn any Stars in this section.

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:

[Related -Microsoft Corporation (MSFT): Good Buy or Good-Bye?]

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Div. Growth

6. Rolling 4-yr Div. > 15%

PEP earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. PEP earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1952 and has increased its dividend payments for 40 consecutive years.

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) or Treasury bond? 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:

1. NPV MMA Diff.

2. Years to > MMA

PEP earned a Star in this section for its NPV MMA Diff. of the $774. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as PEP has. The stock's current yield of 3.08% exceeds the 2.42% estimated 20-year average MMA rate.

Memberships and Peers: PEP is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: The Coca-Cola Company (KO) with a 2.8% yield, Dr Pepper Snapple Group, Inc. (DPS) with a 3.2% yield and Fomento Econ (FMX) with a 1.6% yield.

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 stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $81.87 before PEP's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 40 years of consecutive dividend increases. At that price the stock would yield 3.1%.

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 3.3%. This dividend growth rate is below the 5.1% used in this analysis, thus providing a margin of safety. PEP has a risk rating of 1.25 which classifies it as a Low risk stock.

PEP enjoys stable end markets, predictable cash flows and leading global market positions. With soft drink consumption declining is the U.S., PEP has turned to international markets. The company's diverse portfolio can mitigate the impact of poor conditions in any one of its markets. PEP's direct store delivery system allows it to leverage its impressive portfolio of brands. PEP's product innovation and focus on health and wellness should continue to drive higher revenues, which could be the basis of higher dividends and share repurchases.

My concerns are PEP's debt as a percent of total capital and its free cash flow payout. Since I last reviewed PEP, debt as a percent of total capital is upone point to 56%, while free cash flow payout fell from 71% to 60% (which is at the high end of my acceptable range). In addition, PEP is trading above my calculated fair value of $62.86. For now, I will monitor thestock closely and wait before adding to my position.

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 (1.5% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageXerox Corp. (XRX): An Insider’s $500,000 Insider Buy

Last week was a healthy week of insider buying as 194 companies reported purchase records. The number read on...

article imageQihoo 360 Technology Co Ltd. (QIHU) Q2 Earnings Preview: A Green Monday

Qihoo 360 Technology Co Ltd. (NYSE:QIHU) will report its second quarter 2014 financial results on Monday, read on...

article imageSix Stocks that Could Outperform in the next 90 days

Earlier today, Goldman Sachs put out its list of the 50 stocks that Matter Most. It’s a list of the 50 read on...

article imageFoot Locker, Inc. (FL) Q2 Earnings Preview: Running Past the Street View

Foot Locker, Inc. (NYSE:FL) plans to report financial results for its second quarter ended August 2, 2014 read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.