About PepsiCo
Ah, the Super Bowl.
One of the most nostalgic events of my entire life.
I vividly remember my parents driving me over to my best friend’s house, scarfing down some pizza, practically diving headfirst into a liter or two of Pepsi (because really what is a Super Bowl party without a few liters of Pepsi), subsequently morphing into uncontainable gremlins, running down to the basement like mad ants and playing our pregame video games (Battlefront was the game of choice, in case you were just dying to know), talking about girls in our grade and yip yapping about other silly topics of discussion while on our soda and pizza binges.
While the Super Bowl holds a lot of deposit space in my memory bank, the undisputed fact of the matter is that this is one of the largest, most prominent events in all of the global sports, therefore, is not merely an event just for the fans, but arguably one of the best annual platforms for a businesses or other type of organization to get their product(s) and/or message(s) out there, as it is said that 115 million people watched last year’s Super Bowl alone, naturally lending itself to be an excellent platform for advertisers, but of course, with this sort of reach it is going to cost a pretty penny, so it is usually the biggest and the baddest of companies that have the opportunity to affording some air time during the Big Game, and that most certainly includes one of the largest, most diversified snacking and beverage companies on the face of the earth, Purchase, New York-headquartered PepsiCo.
And boy does PepsiCo have plenty of customer reach, as one could easily find any and perhaps the vast majority of its products within any nearby Dollar General, Walmart, Kroger or practically any other grocery chain or local gas station or vending machine for that matter, as they are more than likely going to be selling the company’s main show pony, its most prominent beverage lines Pepsi (well, duh), Gatorade and Mountain Dew, as well as its impressive snacking portfolio which includes Lay’s, Ruffles, Tostitos, Doritos, Cheetos, Smartfood Popcorn, along with some supplemental brands such as Rockstar, the energy drink line, Bubly Sparkling Water, Rold Gold pretzels, all products under the Quaker Oats Company brand, Mirinda, Sabra and a few other notable brands, with, of course, a vast amount of iterations and variations within each of its product categories and products themselves, and through this maintaining an excellent track record of staying relevant with the consumer, which is no small feat, mind you.
As it relates to our general thoughts as to whether or not we initially presume PepsiCo to be resistant to recessionary and/or inflationary pressures or not, our inkling is to say that the company is far more recession resistant than not, being that its products are naturally easy to grab, naturally low in terms of pricing (at least generally from the consumer’s perspective), and snacking has simply become more and more integrated within one’s way of life, for better or worse, and with PepsiCo’s massive distribution network and brand power, not to mention that this company has a sizable amount of inherent pricing power with its suppliers, which is essentially the case with basically any and all major Fortune 500 companies, it generally tracks that this company is more than likely recession resistant.
While snacking and beverage, like any other categories or sectors, are not fully immune to inflationary and even a string of commodity-induced pressures (i.e., the price of certain grains going up and thus eating into PepsiCo’s bottom line within its chip categories), this is a tried and true, simple, yet still growing industry with, from my perspective, more tailwinds than headwinds within the scope of the long-term.
So as to not drone on about PepsiCo, I’d rather just dive headfirst into its recent and current financials and let them speak for themselves, as these figures are the bedrock of our ultimate decision regarding whether or not this company’s stock (NASDAQ: PEP) is worthy of a “buy,” “hold,” or “sell” rating.
Let’s do this thing.
PepsiCo’s stock financials
First things first, PepsiCo is as gigantic as you might’ve guessed, especially when referencing its current market capitalization, standing tall at a whopping $234.57 billion, valuing itself as over a quarter of a trillion-dollar company, accompanied by its present share price of $170.61, not to mention the fact that this firm maintains a price-to-earnings (P/E) ratio of 25.56, all while issuing an annual dividend of $5.08 to its shareholder base, implying that PepsiCo has little to no issues in the realm of generating a good deal of cash through its operations, which we will verify to be the case later on within this stock analysis article.
In briefly contextualizing these initial figures, the company’s price-to-earnings ratio, which is most commonly known as being a measure of a company’s present valuation and what it is actually worth, shares of PepsiCo seems to be trading a bit ahead of themselves relative to their true, intrinsic worth, as it is commonly held that a price-to-earnings ratio of 20 indicates that a security (fancy schmancy word for stock) is trading at its exact fair value, or what it is exactly worth paying for today, whereas anything higher than 20 implies that a stock is objectively overvalued, and while it’s only ticked up just about five points higher than the fair value standard, we have our initial assumptions that PepsiCo isn’t likely growing quickly enough to warrant paying this much of a premium for an ownership stake in the company, but maybe three or four points higher on this benchmark would be a bit more easy to digest.
However, who knows, PepsiCo might be growing its revenues at an impressive enough rate to justify paying such a premium, so let’s continue exploring this company and momentarily, its revenues through its income statement and figures thereof.
Prior to this, it can be found that the company’s executive team is at the helm of approximately $92.1 billion in terms of total assets along with just north of $75 billion in terms of total liabilities, which, considering just how extensive this company’s operations are and the scale it maintains, and, of course, the necessity of all of the moving parts and equipment such as PepsiCo’s vast distribution network alone, this is a great overall balance sheet, as its executives have seemingly just enough freedom to pursue meaningful brand acquisitions and still also continue to consistently reinvest in its operations and products while also remaining total asset-heavy enough, even in lieu of its debt financing and other debt-related initiatives, and on this basis alone, it is hard to see this company going out of business anytime soon by reason of being overleveraged.
With respect to the company’s income statement, PepsiCo’s total annual revenue figures have indeed been growing at a significant rate, starting off at a relative and recent base of $64.6 billion (as reported in 2018), rising each and every year to its latest reported annualized revenue figure of an impressive $86.3 billion, as proclaimed in circa 2022.
Make no mistake about it, PepsiCo already operates off of a very, very wide base, making it all the more impressive that the firm has been able to turn over this sort of revenue growth in a relatively short period of time, which can more than likely be attributed to a blend of combating inflation through price hikes passed onto the consumer, the penetration of current snack and beverage lines and new variations thereof and/or the implementation of new product lines both internally and through external acquisitions.
At the end of the day, this is a resounding positive for PepsiCo in our eyes and this is a rather rare instance in which a company as large and established as this one has firmly justified (again, in our opinion) paying a modest premium for an ownership stake in the company through its common stock.
Regarding the condition of the company’s cash flow statement, PepsiCo has, well, been raking in a great deal of cash, which presumably checks off the “can continue paying out its currently healthy dividend” box on our investment checklist, with its total cash from operations (again, measuring since 2018) have remained between the $9 billion and $11 billion area code, with its net income averaging out at around the high $7 billion, low $8 billion mark, which is candidly a little better than we had initially expected out of this company, and therefore, we have no complaints in these respects for the time being.
PepsiCo’s stock fundamentals
In gaining some more color on the conglomerate’s margins, TD Ameritrade’s platform has PepsiCo’s trailing twelve month (TTM) net profit margin listed at an individually impressive but comparably unexciting 9.13% to the industry’s respective listed average of 16.47%, which seemingly isn’t great, however, not to sound like a broken record, this company does have a lot of different moving parts, brands and operations within, and with a heightened operational footprint almost always invites, neigh, requires a sustained uptick in costs, be it fixed, variable, implicit, explicit, direct, indirect, you name it.
Smaller snacking and beverage manufacturers, sellers, distributors and operators will more than likely always maintain a TTM net profit margin edge on a company as large as this one, as they are naturally much more nimble in their operations and don’t have as many expenses or floating costs to tend to, and while we are never in the business of offering companies any sort of pass, per se, we can say with great confidence that we weren’t expecting the largest, most competitive overall TTM net profit margin out of PepsiCo, especially on a comparable basis.
As it relates to the company’s TTM return on both assets and investment(s), TD’s platform pegs PepsiCo’s as being well in line with those of the industry, with, for example, the company’s TTM return on investment listed as 12.32% to the industry’s respective average of 13.19%, which is close enough to the point that, sure, a little improvement is always welcome, but this is such a large and vast company and overall category that this discrepancy isn’t going to spook us in the slightest, not to mention that the company’s TTM return on assets is in a very similar stature to that of the industry’s cumulative average.
Should you buy PepsiCo stock?
The price-to-earnings multiple portion of this analysis is actually quite interesting, and somewhat uncommon, all things considered, as we presumed there would be trace amounts of (revenue) growth behind this company, but we surely didn’t expect the sort of recent growth figures it has been putting up, to us, largely justifying a “buy” rating as opposed to the “hold” rating we would’ve otherwise given it if the growth wasn’t there.
But that’s not the only reason we feel comfortable in presenting PepsiCo’s stock (NASDAQ: PEP) with a “buy” rating, as the company’s balance sheet is in excellent form, it is quite a cash flow generative company with a strong dividend as a byproduct, the nature of its business is generally resistant to recessionary and/or inflationary pressures, which can be found predominantly through its cash flow statement, specifically through its net income and total cash from operations figures.
Short, sweet and to the point, we still like PepsiCo at these price levels.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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