The last time I wrote about PepsiCo Inc. (PEP) I stated that I was going to buy some more shares in the stock because I felt the stock could go higher. Since the last article, it has risen 2.93% versus the 10.58% gain the S&P 500 (SPY) posted. Pepsi is a global food and beverage company which operates four business units: PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe and PepsiCo Asia Middle East and Africa.
On October 16, 2013, the company reported third quarter earnings of $1.24 per share, which beat the consensus of analysts' estimates by seven cents. In the past year, the company's stock is up 17.56% excluding dividends (up 19.67% including dividends) and is losing to the S&P 500, which has gained 27.82% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the consumer goods sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 19.22, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the one-year forward-looking P/E ratio of 17.39 is currently fairly priced for the future in terms of the right here, right now. The one-year PEG ratio (2.29), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon) tells me that the company is expensively priced based on a 1-year EPS growth rate of 8.41%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investments. The company pays a dividend of 2.77% with a payout ratio of 53% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.8%, 29.7% and 13.9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.77% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 41 years at a 5-year dividend growth rate of 9.3%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart (RSI) at the top, I see the stock bouncing off of oversold territory with upward trajectory and a value of 44.67. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is about to cross above the red line with the divergence bars increasing in height, indicating bullish momentum if it can actually cross above. As for the stock price itself ($81.86), I'm looking at $82.72 to act as resistance and the 200-day simple moving average to act as support (currently at $80.94) for a risk/reward ratio which plays out to be -1.12% to 1.05%.
- The company struck a deal with Buffalo Wild Wings (BWLD) which could lead to bigger things. The deal lands Pepsi products in 950 bars across the U.S. and Canada and I wouldn't be surprised if Buffalo Wild Wings tries to adopt some of the Frito-Lay flavors as Taco Bell (YUM) has with some of its crunchy tacos.
- The company named D Shivakumar to its top executive position in India at the beginning of December. The position had been vacated since June 2013 and comes at a time when the company is looking to double capacity in India.
- The company declared a quarterly dividend of $0.5675 per share with an ex-date of 04Dec13 and pay date of 02Jan13.
Since May 2013 the consumer staples names have started to diverge from the overall market as measured by the S&P 500 to the downside which indicates that money is finding its way to higher growth stocks. Fundamentally the company is fairly priced based on future earnings potential and expensively priced on future growth potential. Financially, the dividend payout ratio is a bit smaller albeit at a higher stock price, which I will take any day of the year. Technically, I see the stock bouncing off from oversold territory. The company has become fairly valued based on earnings, has a low dividend yield and has some major capital expenses coming down the line - normally it is for these reasons I would not layer into my position but because the stock is showing strong bullish technicals I'm going to buy a very small position here.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!