Overvalued Snacks Company: Pepsi


Leveraged balance sheet may also deter investors at first glance

Pepsi, $158 billion food and beverage company, reported is set to report its annual earnings in a matter of few days.

Meanwhile, the New York-based snacks company reported 1.7% rise in revenue and 13% increase in profits in its previous 36 weeks as of September 2017.

“Overall, our businesses performed well in the third quarter in what continues to be a challenging environment.

“Each of our operating sectors delivered results in line with or ahead of our expectations, with the exception of North America Beverages (NAB) where revenues declined following two consecutive years of very strong third-quarter growth. Despite the challenges in our NAB business, the PepsiCo portfolio overall generated revenue, operating profit and earnings per share growth. Although we have moderated our full-year organic revenue growth outlook, we are now on track to exceed the full-year earnings per share target we set at the beginning of the year.”

Chairman and CEO Indra Nooyi

In September, Pepsi’s debt rose by $2.2 billion to $39 billion (2.91x debt-equity) and book value of $13.5 billion. The company also generated $4.6 billion in free cash flow in the period.

In the past three fiscal years, Pepsi allocated $15 billion in financing activities and generated $22.8 billion in free cash flow.

Analysts have an average price target of $124.73/share vs. $111.79 at the time of writing. Conservative calculations gave a figure of $69/share. Falling nearly 9% from its all-time high, eager investors may have to wait a little more before purchasing Pepsi shares.

Disclosure: no shares in Pepsi.

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