PepsiCo Inc DCF Valuation: Is The Stock Undervalued?
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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, PepsiCo Inc (PEP).
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 2.66%.
Source: Google Finance
Inputs
- Discount Rate: 8%
- Terminal Growth Rate: 3%
- WACC: 8%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 16.86 | 15.61 |
| 2025 | 18.36 | 15.74 |
| 2026 | 19.98 | 15.86 |
| 2027 | 21.75 | 15.99 |
| 2028 | 23.67 | 16.11 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 487.60 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 331.85 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 79.31 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 411.16 billion
Net Debt
Net Debt = Total Debt – Total Cash = 36.96 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 374.20 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $272.74
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $272.74 | $162.72 | 40.34% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $272.74 share is higher than the current market price of $162.72. The Margin of Safety is 40.34%.
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