Thursday, 13 February 2014

Pepsi - split hopes go flat

I last wrote about Pepsi back in October (link here).  Back then I was not that impressed, particularly versus Coca-Cola:

'Even with an activist shareholder on board (Nelson Peltz) and its 'safe' status, Pepsi shares do not really interest me today'. 

So what to make of the Pepsi quarterly announcement today?  Well, the numbers technically beat:

'PepsiCo Inc. (PEP): Q4 EPS of $1.05 beats by $0.04'

However the comment that the company 'will maximize shareholder value by retaining the North American beverage business in its current corporate structure' overshadowed this as well as the 15% dividend rise / increase in the share buyback.  This helped push the shares down to the US$78s support level


Looking through the presentation document, I was actually pleasantly surprised.  Not only was the actual presentation style more to my liking but this pricing chart surprised me (no prizes for guessing who often is the 'primary competitor'!) given the data I saw last quarter. 

In terms of 2014 goals, I note that Pepsi (inevitably) has gone down the same route of a number of other companies I have written about in recent days where the core constant currency EPS growth is in the mid-to-high single digit EPS area...but actual reported EPS growth will be much lower than this due to anticipated foreign exchange issues (-4% i.e. bringing estimated EPS growth down to 3%). 
 Otherwise it is all about the dividend...

...and the buy back
If you put these two together this is a near 7% return of capital to shareholders.  Most investors would be quite happy with that.  The forward EV/ebit rating is x14 which is just ok.  If feels as if it is moving itself towards 'fairly valued' territory...especially as the kicker from potential beverages/food split re-rating angle has been (seemingly) pulled away. 


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