Profile

PepsiCo is a global leader in snacks and beverages, owning well-known household brands including Pepsi, Mountain Dew, Gatorade, Lay’s, Cheetos, and Doritos, among others. The company dominates the global savory snacks market and also ranks as the second-largest beverage provider in the world (behind Coca-Cola) with diversified exposure to carbonated soft drinks, or CSD, as well as water, sports, and energy drink offerings. Convenience foods account for approximately 55% of its total revenue, with beverages making up the rest. Pepsi owns the bulk of its manufacturing and distribution capacity in the US and overseas. International markets make up 40% of total sales and one third of operating profits.

Recent Performance

Over the past twelve months the share price is down 11.92%.

Source: Google Finance

Inputs

• Discount Rate: 6%
• Terminal Growth Rate: 3%
• WACC: 6%

Forecasted Free Cash Flows (FCFs)

Terminal Value

Terminal Value = FCF * (1 + g) / (r – g) = 380.41 billion

Present Value of Terminal Value

PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 284.27 billion

Present Value of Free Cash Flows

Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 39.82 billion

Enterprise Value

Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 324.09 billion

Net Debt

Net Debt = Total Debt – Total Cash = 37.90 billion

Equity Value

Equity Value = Enterprise Value – Net Debt = 286.19 billion

Per-Share DCF Value

Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $208.44

Conclusion

Based on the DCF valuation, the stock is undervalued. The DCF value of $208.44 share is higher than the current market price of $168.17. The Margin of Safety is 19.32%.

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