Previously Valuecruncher has looked at Coca-Cola ($KO).  With Nielson rating carbonated beverages a recession vulnerable category we thought it was time to have a look at PepsiCo ($PEP).  How does the current share price look?

Valuecruncher valuation model of $PEP with interactive assumptions

Valuecruncher produces a valuation of US$48.01 for $PEP. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 10.5% below the current share price of US$53.64.

Assumptions

• Revenue: Reuters aggregates 10 analysts covering $PEP and these analysts have mean estimates of 2008 and 2009 revenues of US$43.5 billion and US$46.7 billion respectively. For our analysis we have used US$43.0 billion in 2008, US$46.0 billion in 2009 and US$47.5 billion in 2010.
• Profitability: We have used an EBITDA margin of 20.0% in 2008 rising to 21.0% in 2010. Reuters has $PEP‘s EBITD margin at 20.8% last year and 22.0% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$2.5 billion per annum moving forward.
• Discount Rate: 9.0%.  Valuecruncher used a discount rate of 8% in our $KO valuation.  We believe a discount rate in the 8-9% range is reasonable.
• Terminal Growth Rate: 3.0%.

Our analysis incorporates the cash and debt the $PEP balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None