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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 ().
ProfilePepsiCo 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 PerformanceOver the past twelve months the share price is down 2.66%.Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 487.60 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 331.85 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 79.31 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 411.16 billionNet DebtNet Debt = Total Debt – Total Cash = 36.96 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 374.20 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $272.74
Conclusion
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%.
