Intrinsic value of PepsiCo - PEP

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$112.64

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$112.64

 
Intrinsic value

$59.61

 
Up/down potential

-47%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PEP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 160.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.41
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  62,799
  64,055
  65,528
  67,212
  69,103
  71,198
  73,497
  76,000
  78,709
  81,628
  84,761
  88,112
  91,688
  95,496
  99,543
  103,836
  108,387
  113,204
  118,298
  123,680
  129,363
  135,359
  141,682
  148,348
  155,371
  162,768
  170,556
  178,753
  187,379
  196,453
  205,998
Variable operating expenses, $m
 
  55,571
  56,816
  58,239
  59,837
  61,607
  63,549
  65,664
  67,954
  70,421
  73,068
  74,457
  77,479
  80,696
  84,116
  87,744
  91,589
  95,660
  99,964
  104,512
  109,314
  114,381
  119,725
  125,357
  131,292
  137,542
  144,123
  151,050
  158,339
  166,007
  174,073
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  53,014
  55,571
  56,816
  58,239
  59,837
  61,607
  63,549
  65,664
  67,954
  70,421
  73,068
  74,457
  77,479
  80,696
  84,116
  87,744
  91,589
  95,660
  99,964
  104,512
  109,314
  114,381
  119,725
  125,357
  131,292
  137,542
  144,123
  151,050
  158,339
  166,007
  174,073
Operating income, $m
  9,785
  8,484
  8,712
  8,973
  9,266
  9,591
  9,947
  10,335
  10,755
  11,208
  11,693
  13,655
  14,210
  14,800
  15,427
  16,092
  16,798
  17,544
  18,334
  19,168
  20,048
  20,978
  21,958
  22,991
  24,079
  25,225
  26,432
  27,703
  29,040
  30,446
  31,925
EBITDA, $m
  12,153
  11,556
  11,822
  12,126
  12,467
  12,845
  13,259
  13,711
  14,200
  14,726
  15,292
  15,896
  16,541
  17,228
  17,958
  18,733
  19,554
  20,423
  21,342
  22,313
  23,338
  24,420
  25,561
  26,763
  28,030
  29,365
  30,770
  32,248
  33,805
  35,442
  37,164
Interest expense (income), $m
  1,102
  1,052
  950
  993
  1,042
  1,097
  1,158
  1,225
  1,297
  1,376
  1,461
  1,552
  1,650
  1,754
  1,864
  1,982
  2,107
  2,239
  2,380
  2,528
  2,684
  2,850
  3,024
  3,208
  3,402
  3,606
  3,821
  4,048
  4,286
  4,537
  4,801
Earnings before tax, $m
  8,553
  7,432
  7,762
  7,981
  8,225
  8,494
  8,790
  9,111
  9,458
  9,831
  10,232
  12,103
  12,560
  13,046
  13,562
  14,110
  14,691
  15,305
  15,954
  16,640
  17,364
  18,128
  18,934
  19,783
  20,677
  21,619
  22,611
  23,655
  24,753
  25,909
  27,124
Tax expense, $m
  2,174
  2,007
  2,096
  2,155
  2,221
  2,293
  2,373
  2,460
  2,554
  2,654
  2,763
  3,268
  3,391
  3,522
  3,662
  3,810
  3,966
  4,132
  4,308
  4,493
  4,688
  4,895
  5,112
  5,341
  5,583
  5,837
  6,105
  6,387
  6,683
  6,995
  7,324
Net income, $m
  6,329
  5,426
  5,667
  5,826
  6,004
  6,201
  6,416
  6,651
  6,904
  7,177
  7,469
  8,835
  9,169
  9,524
  9,901
  10,300
  10,724
  11,172
  11,646
  12,147
  12,676
  13,234
  13,822
  14,441
  15,094
  15,782
  16,506
  17,268
  18,070
  18,914
  19,801

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16,125
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  74,129
  59,146
  60,506
  62,061
  63,807
  65,741
  67,864
  70,175
  72,677
  75,372
  78,265
  81,359
  84,661
  88,177
  91,914
  95,879
  100,080
  104,528
  109,231
  114,201
  119,448
  124,985
  130,824
  136,979
  143,463
  150,293
  157,484
  165,053
  173,018
  181,397
  190,211
Adjusted assets (=assets-cash), $m
  58,004
  59,146
  60,506
  62,061
  63,807
  65,741
  67,864
  70,175
  72,677
  75,372
  78,265
  81,359
  84,661
  88,177
  91,914
  95,879
  100,080
  104,528
  109,231
  114,201
  119,448
  124,985
  130,824
  136,979
  143,463
  150,293
  157,484
  165,053
  173,018
  181,397
  190,211
Revenue / Adjusted assets
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
  1.083
Average production assets, $m
  29,711
  30,298
  30,995
  31,791
  32,686
  33,677
  34,764
  35,948
  37,229
  38,610
  40,092
  41,677
  43,369
  45,170
  47,084
  49,115
  51,267
  53,545
  55,955
  58,501
  61,188
  64,025
  67,016
  70,169
  73,490
  76,989
  80,673
  84,550
  88,630
  92,922
  97,437
Working capital, $m
  5,954
  -3,331
  -3,407
  -3,495
  -3,593
  -3,702
  -3,822
  -3,952
  -4,093
  -4,245
  -4,408
  -4,582
  -4,768
  -4,966
  -5,176
  -5,399
  -5,636
  -5,887
  -6,151
  -6,431
  -6,727
  -7,039
  -7,367
  -7,714
  -8,079
  -8,464
  -8,869
  -9,295
  -9,744
  -10,216
  -10,712
Total debt, $m
  36,945
  27,142
  28,367
  29,766
  31,337
  33,078
  34,989
  37,069
  39,320
  41,746
  44,349
  47,134
  50,106
  53,270
  56,633
  60,202
  63,983
  67,986
  72,219
  76,692
  81,414
  86,398
  91,653
  97,192
  103,028
  109,175
  115,647
  122,459
  129,627
  137,169
  145,101
Total liabilities, $m
  63,034
  53,231
  54,456
  55,855
  57,426
  59,167
  61,078
  63,158
  65,409
  67,835
  70,438
  73,223
  76,195
  79,359
  82,722
  86,291
  90,072
  94,075
  98,308
  102,781
  107,503
  112,487
  117,742
  123,281
  129,117
  135,264
  141,736
  148,548
  155,716
  163,258
  171,190
Total equity, $m
  11,095
  5,915
  6,051
  6,206
  6,381
  6,574
  6,786
  7,018
  7,268
  7,537
  7,826
  8,136
  8,466
  8,818
  9,191
  9,588
  10,008
  10,453
  10,923
  11,420
  11,945
  12,499
  13,082
  13,698
  14,346
  15,029
  15,748
  16,505
  17,302
  18,140
  19,021
Total liabilities and equity, $m
  74,129
  59,146
  60,507
  62,061
  63,807
  65,741
  67,864
  70,176
  72,677
  75,372
  78,264
  81,359
  84,661
  88,177
  91,913
  95,879
  100,080
  104,528
  109,231
  114,201
  119,448
  124,986
  130,824
  136,979
  143,463
  150,293
  157,484
  165,053
  173,018
  181,398
  190,211
Debt-to-equity ratio
  3.330
  4.590
  4.690
  4.800
  4.910
  5.030
  5.160
  5.280
  5.410
  5.540
  5.670
  5.790
  5.920
  6.040
  6.160
  6.280
  6.390
  6.500
  6.610
  6.720
  6.820
  6.910
  7.010
  7.100
  7.180
  7.260
  7.340
  7.420
  7.490
  7.560
  7.630
Adjusted equity ratio
  -0.044
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,329
  5,426
  5,667
  5,826
  6,004
  6,201
  6,416
  6,651
  6,904
  7,177
  7,469
  8,835
  9,169
  9,524
  9,901
  10,300
  10,724
  11,172
  11,646
  12,147
  12,676
  13,234
  13,822
  14,441
  15,094
  15,782
  16,506
  17,268
  18,070
  18,914
  19,801
Depreciation, amort., depletion, $m
  2,368
  3,072
  3,109
  3,152
  3,200
  3,254
  3,312
  3,376
  3,445
  3,519
  3,598
  2,241
  2,332
  2,428
  2,531
  2,641
  2,756
  2,879
  3,008
  3,145
  3,290
  3,442
  3,603
  3,773
  3,951
  4,139
  4,337
  4,546
  4,765
  4,996
  5,239
Funds from operations, $m
  11,250
  8,497
  8,776
  8,978
  9,204
  9,454
  9,728
  10,026
  10,349
  10,696
  11,068
  11,076
  11,500
  11,952
  12,432
  12,941
  13,480
  14,051
  14,655
  15,292
  15,966
  16,676
  17,425
  18,214
  19,046
  19,921
  20,843
  21,814
  22,835
  23,909
  25,039
Change in working capital, $m
  846
  -65
  -77
  -88
  -98
  -109
  -120
  -130
  -141
  -152
  -163
  -174
  -186
  -198
  -210
  -223
  -237
  -250
  -265
  -280
  -296
  -312
  -329
  -347
  -365
  -385
  -405
  -426
  -449
  -472
  -496
Cash from operations, $m
  10,404
  8,876
  8,853
  9,066
  9,303
  9,563
  9,848
  10,157
  10,490
  10,848
  11,231
  11,250
  11,686
  12,150
  12,642
  13,164
  13,717
  14,302
  14,920
  15,572
  16,261
  16,988
  17,753
  18,561
  19,411
  20,306
  21,248
  22,240
  23,284
  24,381
  25,536
Maintenance CAPEX, $m
  0
  -1,597
  -1,629
  -1,666
  -1,709
  -1,757
  -1,811
  -1,869
  -1,933
  -2,002
  -2,076
  -2,155
  -2,241
  -2,332
  -2,428
  -2,531
  -2,641
  -2,756
  -2,879
  -3,008
  -3,145
  -3,290
  -3,442
  -3,603
  -3,773
  -3,951
  -4,139
  -4,337
  -4,546
  -4,765
  -4,996
New CAPEX, $m
  -3,040
  -587
  -697
  -797
  -894
  -991
  -1,087
  -1,184
  -1,282
  -1,381
  -1,482
  -1,585
  -1,691
  -1,801
  -1,914
  -2,031
  -2,152
  -2,278
  -2,409
  -2,546
  -2,688
  -2,836
  -2,991
  -3,153
  -3,322
  -3,499
  -3,684
  -3,877
  -4,080
  -4,292
  -4,515
Cash from investing activities, $m
  -7,148
  -2,184
  -2,326
  -2,463
  -2,603
  -2,748
  -2,898
  -3,053
  -3,215
  -3,383
  -3,558
  -3,740
  -3,932
  -4,133
  -4,342
  -4,562
  -4,793
  -5,034
  -5,288
  -5,554
  -5,833
  -6,126
  -6,433
  -6,756
  -7,095
  -7,450
  -7,823
  -8,214
  -8,626
  -9,057
  -9,511
Free cash flow, $m
  3,256
  6,691
  6,527
  6,603
  6,699
  6,815
  6,950
  7,104
  7,275
  7,465
  7,673
  7,510
  7,754
  8,017
  8,300
  8,602
  8,924
  9,267
  9,631
  10,018
  10,428
  10,862
  11,320
  11,805
  12,316
  12,856
  13,426
  14,026
  14,658
  15,324
  16,025
Issuance/(repayment) of debt, $m
  3,746
  -2,911
  1,224
  1,400
  1,571
  1,741
  1,910
  2,080
  2,252
  2,426
  2,603
  2,785
  2,972
  3,164
  3,363
  3,568
  3,782
  4,003
  4,233
  4,473
  4,723
  4,983
  5,255
  5,539
  5,836
  6,147
  6,472
  6,812
  7,168
  7,541
  7,932
Issuance/(repurchase) of shares, $m
  -2,542
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,285
  -2,911
  1,224
  1,400
  1,571
  1,741
  1,910
  2,080
  2,252
  2,426
  2,603
  2,785
  2,972
  3,164
  3,363
  3,568
  3,782
  4,003
  4,233
  4,473
  4,723
  4,983
  5,255
  5,539
  5,836
  6,147
  6,472
  6,812
  7,168
  7,541
  7,932
Total cash flow (excl. dividends), $m
  4,289
  3,781
  7,751
  8,002
  8,270
  8,556
  8,860
  9,184
  9,527
  9,891
  10,276
  10,295
  10,726
  11,182
  11,663
  12,170
  12,706
  13,270
  13,865
  14,491
  15,150
  15,845
  16,575
  17,344
  18,153
  19,003
  19,897
  20,838
  21,826
  22,865
  23,957
Retained Cash Flow (-), $m
  828
  -4,053
  -136
  -156
  -175
  -193
  -212
  -231
  -250
  -270
  -289
  -309
  -330
  -352
  -374
  -396
  -420
  -445
  -470
  -497
  -525
  -554
  -584
  -615
  -648
  -683
  -719
  -757
  -796
  -838
  -881
Prev. year cash balance distribution, $m
 
  9,233
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  8,961
  7,615
  7,847
  8,096
  8,363
  8,648
  8,953
  9,277
  9,621
  9,987
  9,985
  10,396
  10,830
  11,289
  11,774
  12,285
  12,825
  13,394
  13,994
  14,626
  15,291
  15,991
  16,729
  17,504
  18,320
  19,178
  20,081
  21,030
  22,027
  23,076
Discount rate, %
 
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
 
  8,478
  6,779
  6,536
  6,270
  5,982
  5,675
  5,348
  5,004
  4,647
  4,280
  3,760
  3,405
  3,051
  2,704
  2,368
  2,047
  1,747
  1,469
  1,217
  992
  794
  625
  482
  364
  270
  195
  138
  95
  64
  41
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

PepsiCo, Inc. operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips, and Fritos corn chips. The company’s Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, granola, and oat squares; and Aunt Jemima mixes and syrups, Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal, and Rice-A-Roni side dishes. Its North America Beverages segment offers beverage concentrates, fountain syrups, and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Diet Mountain Dew, Tropicana Pure Premium, Mist Twst, and Mug brands; and ready-to-drink tea and coffee, and juices. The company’s Latin America segment provides snack foods under the Doritos, Cheetos, Marias Gamesa, Ruffles, Emperador, Saladitas, Sabritas, Lay’s, Rosquinhas Mabel, and Tostitos brands; cereals and snacks under the Quaker brand; and beverage concentrates, fountain syrups, and finished goods under the Pepsi, 7UP, Gatorade, Toddy, Mirinda, Manzanita Sol, H2oh!, and Diet Pepsi brands. Its Europe Sub-Saharan Africa segment offers snack foods under the Lay’s, Walkers, Doritos, Cheetos, and Ruffles brands; cereals and snacks under the Quaker brand; beverage concentrates, fountain syrups, and finished goods under the Pepsi, 7UP, Pepsi Max, Mirinda, Diet Pepsi, and Tropicana brands; ready-to-drink tea products; and dairy products under the Chudo, Agusha, and Domik v Derevne brands. The company’s Asia, Middle East and North Africa segment provides snack foods under the Lay’s, Kurkure, Chipsy, Doritos, Cheetos, and Crunchy brands; cereals and snacks under the Quaker brand; beverage concentrates, fountain syrups, and finished goods under the Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina, and Tropicana brands; and tea products. The company was founded in 1898 and is headquartered in Purchase, New York.

FINANCIAL RATIOS  of  PepsiCo (PEP)

Valuation Ratios
P/E Ratio 25.4
Price to Sales 2.6
Price to Book 14.5
Price to Tangible Book
Price to Cash Flow 15.5
Price to Free Cash Flow 21.8
Growth Rates
Sales Growth Rate -0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 10.2%
Cap. Spend. - 3 Yr. Gr. Rate 1.7%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 270.9%
Total Debt to Equity 333%
Interest Coverage 9
Management Effectiveness
Return On Assets 9.9%
Ret/ On Assets - 3 Yr. Avg. 9.5%
Return On Total Capital 13.6%
Ret/ On T. Cap. - 3 Yr. Avg. 12.8%
Return On Equity 55%
Return On Equity - 3 Yr. Avg. 41.1%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 55.1%
Gross Margin - 3 Yr. Avg. 54.2%
EBITDA Margin 19.1%
EBITDA Margin - 3 Yr. Avg. 18.2%
Operating Margin 15.6%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 13.6%
Pre-Tax Margin - 3 Yr. Avg. 12.9%
Net Profit Margin 10.1%
Net Profit Margin - 3 Yr. Avg. 9.5%
Effective Tax Rate 25.4%
Eff/ Tax Rate - 3 Yr. Avg. 25.5%
Payout Ratio 66.8%

PEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PEP stock intrinsic value calculation we used $62799 million for the last fiscal year's total revenue generated by PepsiCo. The default revenue input number comes from 2016 income statement of PepsiCo. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PEP stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.7%, whose default value for PEP is calculated based on our internal credit rating of PepsiCo, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of PepsiCo.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PEP stock the variable cost ratio is equal to 86.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PEP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for PepsiCo.

Corporate tax rate of 27% is the nominal tax rate for PepsiCo. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PEP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PEP are equal to 47.3%.

Life of production assets of 18.6 years is the average useful life of capital assets used in PepsiCo operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PEP is equal to -5.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $11095 million for PepsiCo - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1424.19 million for PepsiCo is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of PepsiCo at the current share price and the inputted number of shares is $160.4 billion.


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COMPANY NEWS

▶ PepsiCo Credit Grade Boosted by S&P   [11:33AM  TheStreet.com]
▶ PepsiCo Earns an A-Plus from S&P   [11:04AM  Barrons.com]
▶ [$$] From Diapers to Soda, Big Brands Feel Pinch as Consumers Pull Back   [Apr-26-17 11:38PM  The Wall Street Journal]
▶ S&P 500 and Nasdaq mostly flat on the day   [04:50PM  CNBC Videos]
▶ What you need to know on Wall Street today   [01:09PM  Business Insider]
▶ Higher prices boost PepsiCo revenue   [11:02AM  Reuters Videos]
▶ Coke vs. Pepsi Earnings Recap   [10:38AM  Investopedia]
▶ How Does PepsiCo Make Money?   [09:07AM  Investopedia]
▶ Pepsi's Most Famous Celebrity Endorsements   [08:33AM  Investopedia]
▶ [$$] Pepsi Says Pricing Lifts Results   [08:15AM  The Wall Street Journal]
▶ Jim Cramer Previews PepsiCo, Twitter, Boeing   [Apr-25-17 02:57PM  TheStreet.com]
▶ [$$] Pepsi Earnings: What to Watch   [06:00AM  The Wall Street Journal]
▶ PepsiCos Valuation ahead of 1Q17 Results   [09:07AM  Market Realist]
▶ Analyst: Mondelez Would Be Digestible for Pepsi   [Apr-20-17 03:28PM  Investopedia]
▶ Diet Sodas Continue to Lose Volume   [01:07PM  Investopedia]
▶ 5 Dividend Stocks to Buy in April   [09:03AM  Motley Fool]
▶ Soda Sales Drop for 12th Straight Year   [Apr-19-17 03:43PM  TheStreet.com]
▶ Adidas Is Latest Major Brand to Have a Serious PR Nightmare   [Apr-18-17 04:35PM  TheStreet.com]
▶ 10 Biggest Companies That Hire Felons   [03:59PM  Insider Monkey]
▶ [$$] United, Pepsi Outcry Unlikely to Hurt Financial Results   [Apr-15-17 01:13PM  The Wall Street Journal]
▶ Unilever Gives Internal Activism a Shot   [Apr-13-17 04:30PM  Motley Fool]
▶ Susquehanna: PepsiCo Is Likely M&A Target   [11:18AM  Investopedia]
▶ 3G's Pepsi Challenge   [07:30AM  Bloomberg]
▶ Incytes: Cramer's Top Takeaways   [Apr-12-17 09:30PM  TheStreet.com]
▶ Is Pepsi ripe for a takeover?   [05:51PM  CNBC Videos]
▶ 10 Companies That Control Everything You Buy   [Apr-11-17 04:43PM  Money Videos]
Stock chart of PEP Financial statements of PEP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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