Intrinsic value of PepsiCo - PEP

Previous Close

$119.10

  Intrinsic Value

$57.05

stock screener

  Rating & Target

str. sell

-52%

  Value-price divergence*

-15%

Previous close

$119.10

 
Intrinsic value

$57.05

 
Up/down potential

-52%

 
Rating

str. sell

 
Value-price divergence*

-15%

*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 171.7

 

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
  1,228
  1,269
  1,319
  1,376
  1,440
  1,510
  1,588
  1,672
  1,764
  1,862
  1,968
  2,081
  2,201
  2,330
  2,466
  2,611
  2,764
  2,927
  3,099
  3,280
  3,472
  3,674
  3,887
  4,112
  4,349
  4,598
  4,861
  5,137
  5,428
  5,734
Earnings before tax, $m
  8,553
  7,256
  7,443
  7,654
  7,891
  8,152
  8,437
  8,748
  9,083
  9,444
  9,831
  11,688
  12,129
  12,599
  13,097
  13,626
  14,187
  14,780
  15,407
  16,069
  16,768
  17,506
  18,284
  19,103
  19,967
  20,877
  21,834
  22,842
  23,902
  25,018
  26,191
Tax expense, $m
  2,174
  1,959
  2,010
  2,067
  2,130
  2,201
  2,278
  2,362
  2,452
  2,550
  2,654
  3,156
  3,275
  3,402
  3,536
  3,679
  3,830
  3,991
  4,160
  4,339
  4,527
  4,727
  4,937
  5,158
  5,391
  5,637
  5,895
  6,167
  6,454
  6,755
  7,072
Net income, $m
  6,329
  5,297
  5,433
  5,588
  5,760
  5,951
  6,159
  6,386
  6,631
  6,894
  7,177
  8,532
  8,854
  9,197
  9,561
  9,947
  10,356
  10,789
  11,247
  11,730
  12,241
  12,779
  13,347
  13,946
  14,576
  15,240
  15,939
  16,675
  17,449
  18,263
  19,119

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
  73,490
  73,039
  74,719
  76,639
  78,795
  81,184
  83,805
  86,659
  89,748
  93,077
  96,649
  100,470
  104,548
  108,889
  113,503
  118,400
  123,588
  129,081
  134,889
  141,026
  147,506
  154,343
  161,554
  169,154
  177,162
  185,596
  194,476
  203,823
  213,659
  224,006
  234,890
Adjusted assets (=assets-cash), $m
  57,365
  73,039
  74,719
  76,639
  78,795
  81,184
  83,805
  86,659
  89,748
  93,077
  96,649
  100,470
  104,548
  108,889
  113,503
  118,400
  123,588
  129,081
  134,889
  141,026
  147,506
  154,343
  161,554
  169,154
  177,162
  185,596
  194,476
  203,823
  213,659
  224,006
  234,890
Revenue / Adjusted assets
  1.095
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
  0.877
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
  5,315
  -3,971
  -4,063
  -4,167
  -4,284
  -4,414
  -4,557
  -4,712
  -4,880
  -5,061
  -5,255
  -5,463
  -5,685
  -5,921
  -6,172
  -6,438
  -6,720
  -7,019
  -7,334
  -7,668
  -8,020
  -8,392
  -8,784
  -9,198
  -9,633
  -10,092
  -10,574
  -11,083
  -11,617
  -12,180
  -12,772
Total debt, $m
  36,945
  36,268
  37,687
  39,310
  41,132
  43,150
  45,365
  47,777
  50,387
  53,200
  56,218
  59,447
  62,893
  66,561
  70,460
  74,598
  78,982
  83,623
  88,531
  93,717
  99,192
  104,970
  111,063
  117,485
  124,252
  131,379
  138,882
  146,780
  155,091
  163,835
  173,032
Total liabilities, $m
  62,395
  61,718
  63,137
  64,760
  66,582
  68,600
  70,815
  73,227
  75,837
  78,650
  81,668
  84,897
  88,343
  92,011
  95,910
  100,048
  104,432
  109,073
  113,981
  119,167
  124,642
  130,420
  136,513
  142,935
  149,702
  156,829
  164,332
  172,230
  180,541
  189,285
  198,482
Total equity, $m
  11,095
  11,321
  11,581
  11,879
  12,213
  12,583
  12,990
  13,432
  13,911
  14,427
  14,981
  15,573
  16,205
  16,878
  17,593
  18,352
  19,156
  20,008
  20,908
  21,859
  22,863
  23,923
  25,041
  26,219
  27,460
  28,767
  30,144
  31,593
  33,117
  34,721
  36,408
Total liabilities and equity, $m
  73,490
  73,039
  74,718
  76,639
  78,795
  81,183
  83,805
  86,659
  89,748
  93,077
  96,649
  100,470
  104,548
  108,889
  113,503
  118,400
  123,588
  129,081
  134,889
  141,026
  147,505
  154,343
  161,554
  169,154
  177,162
  185,596
  194,476
  203,823
  213,658
  224,006
  234,890
Debt-to-equity ratio
  3.330
  3.200
  3.250
  3.310
  3.370
  3.430
  3.490
  3.560
  3.620
  3.690
  3.750
  3.820
  3.880
  3.940
  4.010
  4.060
  4.120
  4.180
  4.230
  4.290
  4.340
  4.390
  4.440
  4.480
  4.520
  4.570
  4.610
  4.650
  4.680
  4.720
  4.750
Adjusted equity ratio
  -0.088
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155
  0.155

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,329
  5,297
  5,433
  5,588
  5,760
  5,951
  6,159
  6,386
  6,631
  6,894
  7,177
  8,532
  8,854
  9,197
  9,561
  9,947
  10,356
  10,789
  11,247
  11,730
  12,241
  12,779
  13,347
  13,946
  14,576
  15,240
  15,939
  16,675
  17,449
  18,263
  19,119
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
  8,369
  8,543
  8,740
  8,960
  9,204
  9,471
  9,761
  10,075
  10,413
  10,775
  10,773
  11,186
  11,625
  12,092
  12,588
  13,113
  13,668
  14,255
  14,876
  15,531
  16,222
  16,950
  17,718
  18,527
  19,379
  20,276
  21,220
  22,214
  23,259
  24,358
Change in working capital, $m
  846
  -78
  -91
  -104
  -117
  -130
  -143
  -155
  -168
  -181
  -194
  -208
  -222
  -236
  -251
  -266
  -282
  -299
  -316
  -334
  -352
  -372
  -392
  -413
  -435
  -459
  -483
  -508
  -535
  -563
  -592
Cash from operations, $m
  10,404
  8,447
  8,634
  8,844
  9,078
  9,334
  9,614
  9,917
  10,243
  10,594
  10,969
  10,981
  11,408
  11,861
  12,343
  12,854
  13,395
  13,967
  14,571
  15,209
  15,883
  16,593
  17,342
  18,131
  18,963
  19,838
  20,759
  21,728
  22,748
  23,821
  24,950
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
  6,262
  6,308
  6,381
  6,474
  6,586
  6,716
  6,864
  7,029
  7,212
  7,412
  7,240
  7,475
  7,729
  8,001
  8,292
  8,602
  8,932
  9,283
  9,655
  10,050
  10,467
  10,909
  11,376
  11,868
  12,388
  12,936
  13,514
  14,123
  14,764
  15,439
Issuance/(repayment) of debt, $m
  3,746
  1,181
  1,420
  1,623
  1,822
  2,019
  2,215
  2,412
  2,611
  2,812
  3,018
  3,229
  3,446
  3,669
  3,899
  4,137
  4,384
  4,641
  4,908
  5,186
  5,475
  5,778
  6,093
  6,422
  6,767
  7,127
  7,504
  7,898
  8,311
  8,744
  9,197
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
  1,181
  1,420
  1,623
  1,822
  2,019
  2,215
  2,412
  2,611
  2,812
  3,018
  3,229
  3,446
  3,669
  3,899
  4,137
  4,384
  4,641
  4,908
  5,186
  5,475
  5,778
  6,093
  6,422
  6,767
  7,127
  7,504
  7,898
  8,311
  8,744
  9,197
Total cash flow (excl. dividends), $m
  4,289
  7,444
  7,728
  8,004
  8,296
  8,604
  8,931
  9,275
  9,640
  10,024
  10,430
  10,469
  10,921
  11,397
  11,900
  12,429
  12,986
  13,573
  14,191
  14,841
  15,525
  16,245
  17,002
  17,798
  18,635
  19,515
  20,440
  21,412
  22,434
  23,508
  24,636
Retained Cash Flow (-), $m
  828
  -226
  -260
  -298
  -334
  -370
  -406
  -442
  -479
  -516
  -554
  -592
  -632
  -673
  -715
  -759
  -804
  -851
  -900
  -951
  -1,004
  -1,060
  -1,118
  -1,178
  -1,241
  -1,307
  -1,376
  -1,449
  -1,525
  -1,604
  -1,687
Prev. year cash balance distribution, $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 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
 
  7,218
  7,468
  7,706
  7,962
  8,234
  8,524
  8,833
  9,161
  9,508
  9,877
  9,877
  10,289
  10,725
  11,184
  11,670
  12,182
  12,722
  13,291
  13,890
  14,521
  15,185
  15,884
  16,620
  17,394
  18,208
  19,063
  19,963
  20,909
  21,904
  22,949
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
 
  6,829
  6,648
  6,419
  6,166
  5,891
  5,593
  5,276
  4,942
  4,593
  4,233
  3,719
  3,370
  3,021
  2,679
  2,347
  2,030
  1,733
  1,458
  1,208
  984
  789
  621
  479
  362
  268
  194
  137
  94
  63
  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 26.9
Price to Sales 2.7
Price to Book 15.3
Price to Tangible Book
Price to Cash Flow 16.3
Price to Free Cash Flow 23.1
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 10%
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 -6.2%. 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 1441.72 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 $171.7 billion.

RELATED COMPANIES Price Int.Val. Rating
DPS Dr Pepper Snap 92.44 83.56  hold
KO Coca-Cola 46.20 16.80  str.sell
MDLZ Mondelez Inter 44.19 42.25  hold
K Kellogg 70.07 22.32  str.sell
FIZZ National Bever 113.64 102.10  hold

COMPANY NEWS

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▶ ETFs with exposure to PepsiCo, Inc. : July 31, 2017   [Jul-31-17 05:03PM  Capital Cube]
▶ Analyzing Coca-Colas Margins in 2Q17   [07:37AM  Market Realist]
▶ Coke Zero gets makeover as Coke Zero Sugar   [06:24PM  Associated Press]
▶ PepsiCo deal shows companies not shying away from Redskins   [Jul-25-17 06:13PM  Associated Press]
▶ Coca-Cola: Too Optimistic?   [Jul-24-17 03:00PM  Barrons.com]
▶ Why Coca-Cola Shares Are Overvalued   [12:36PM  Investopedia]
▶ Why sparkling water sales could spike by 20% in 2017   [Jul-23-17 08:29AM  Yahoo Finance]
▶ [$$] PepsiCo CEO Picks a No. 2, but No Heir Apparent   [12:48AM  The Wall Street Journal]
▶ [$$] PepsiCo CEO Picks a President, but No 'Heir Apparent'   [08:43AM  The Wall Street Journal]
▶ PepsiCo CFO: The CEO-CFO partnership   [Jul-18-17 03:02PM  CNBC Videos]
▶ PepsiCo CEO: Whos running your company?   [03:01PM  CNBC Videos]
▶ Why PepsiCos Margins Contracted in 2Q17   [09:07AM  Market Realist]
▶ PepsiCo Declares Quarterly Dividend   [Jul-14-17 04:30PM  PR Newswire]
▶ How PepsiCos Segments Performed in 2Q17   [12:35PM  Market Realist]
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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