Sunday, May 06, 2012

Pepsico (PEP) 2012 Review

Pepsico Inc (PEO) is a global participant in the soft drink, snack food, ready to eat cereals and rice and pasta products. Its brand names include Pepsi, Mountain Dew, Gatorade, Tropicana, Sierra Mist, Aquafina, Lay’s, Doritos Tostitos, Cheetos, Ruffles, Captain Crunch, Quaker Oats.

The company has grown profits and dividends at a 11-12% pace over the last 10 years earning a 25-30% return on equity. PEP should continue to grow at an above average rate because:

(1) a strong new product pipeline which is being augmented by initiatives such as ‘Smart Spot’ which marks healthy choice products,

(2) rapidly expanding international sales. PEP is aggressively introducing its products into China, India, the Middle East, Africa and Latin America,

(3) improving productivity by increasing its merchandising effectiveness and lowering costs,

(4) acquisitions,

(5) stock buy back program.

(1) foreign exposure subjects it to currency fluctuations,

(2) rising raw material costs,

(3) PEP is in a highly competitive industry.

PEP is rated A++ by Value Line, has a 48% debt to equity ratio and its stock yields 3.4%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2002
PEP 3.4% 7% 45% 10
IND 2.2 7 44 NA

Debt/Equity ROE EPS Down Since 2002 Net Margin Value Line Rating
PEP 49% 27% 1 10% A++
IND 53 19 NA 14 NA


Note: PEP stock made good progress off its January 2009 low, quickly surpassing the November 2008 trading high (green line) but taking much longer to surmount the downtrend off its January 2008 high (straight red line). Long term, the stock is in an uptrend (blue lines). Intermediate term, it is in a trading range (purple lines). The wiggly red line is the 50 day moving average. Both the Dividend Growth and Aggressive Growth Portfolios own full positions in PEP. The stock is on both Buy Lists. The lower boundary of its Sell Half Range is $90.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.