DCF Studio

    PEP · NMS · Consumer Defensive

    PepsiCo, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 112.44

    Market price

    USD 129.75

    Implied upside

    -13.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 5.6% of revenue against depreciation of 4.1%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 112.44-13.3%
    Exit multiple
    USD 121.18-6.6%
    Market price
    USD 129.75

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn4bn8bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 96.6bnUSD 99.3bnUSD 102.1bnUSD 105.0bnUSD 108.0bn+2.8%
    EBITUSD 13.4bnUSD 13.8bnUSD 14.2bnUSD 14.6bnUSD 15.0bn+2.8%
    NOPATUSD 10.9bnUSD 11.2bnUSD 11.5bnUSD 11.8bnUSD 12.1bn+2.8%
    Add depreciation & amortisationUSD 3.9bnUSD 4.0bnUSD 4.1bnUSD 4.3bnUSD 4.4bn+2.8%
    Less capital expenditureUSD -5.4bnUSD -5.6bnUSD -5.8bnUSD -5.9bnUSD -6.1bn+2.8%
    Less increase in working capitalUSD -2.1bnUSD -2.2bnUSD -2.2bnUSD -2.3bnUSD -2.4bn+2.8%
    Free cashflow to firmUSD 7.2bnUSD 7.4bnUSD 7.6bnUSD 7.9bnUSD 8.1bn+2.8%
    Discount factor0.96560.90040.83960.78290.7301-
    Present valueUSD 7.0bnUSD 6.7bnUSD 6.4bnUSD 6.2bnUSD 5.9bn-4.1%
    Present Value Of The ForecastUSD 32.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.572Reported 0.361, pulled toward 1.0 (Blume)
    Cost of equity8.14%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 177.2bn78.0% of capital
    Total debtUSD 49.9bn22.0% of capital, book value as a proxy
    Tax rate19.2%Effective, capped at statutory
    WACC7.24%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 112.44

    83% of EV

    Forecast FCFF, final year
    USD 8.1bn
    Capex at depreciation, working capital in reinvestment
    USD 12.1bn
    Less reinvestment at g/ROIC (15.2% of NOPAT)
    USD -1.8bn
    Capitalised
    USD 10.3bn
    ROIC (reported)
    16.5%
    Terminal value, undiscounted
    USD 222.7bn
    Terminal value, discounted
    USD 162.6bn
    Enterprise value
    USD 194.8bn
    Less net debt
    USD 40.4bn
    Equity value
    USD 154.4bn

    Exit at 12.3x EBITDA

    Value per shareUSD 121.18

    84% of EV

    Terminal value, undiscounted
    USD 239.1bn
    Terminal value, discounted
    USD 174.6bn
    Enterprise value
    USD 206.7bn
    Less net debt
    USD 40.4bn
    Equity value
    USD 166.4bn

    Spread between methods: 7%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.24%168.43189.45218.05259.33324.18
    6.24%125.62136.88151.10169.64194.87
    7.24%97.78104.43112.44122.29134.73
    8.24%78.2682.4387.3093.0699.99
    9.24%63.8266.5469.6573.2277.38

    Outlined: this model. Green text: above today's price of 129.75. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year2.8%6.8%+3.9pp
    EBIT margin13.9%15.5%+1.6pp
    Discount rate7.2%6.7%-0.5pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.