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Pepsi Bottling Group: Does the current price justify itself?

|Includes: KO, Pepsi Bottling Group Inc. (PBG)


The Pepsi Bottling Group (PBG) is within 10% of its 52 week high. For the past two quarters, PBG has met or beaten expectations for the past four quarters. However, on April 22, TPG earnings were down 23.1% from 1st quarter of 2008, and for 2nd Quarter 2009 the consensus estimates for PBG are for .73 per share which would represent a 6.5% decline Y/Y.
Investors seem to believe that PBG has a strong future with a P/E ratio of 40.8, but PBG earnings for the past twelve month have declined 63.7 for the twelve trailing months. Does this justify the price of $33.86?
Now let us look at the fundamentals of the company:
ROA (NYSE:TTM):        1.5
ROE (TTM):      10.5
Current Ratio (MRQ): 1.42
Quick Ratio (MRQ) 1.10
LT Debt/Equity (MRQ) 4.64
Total Debt/Equity (MRQ) 4.91
For The Pepsi Bottling Company, the ROE and ROA is a laggard to its peer Coca Cola (NYSE:KO). In regards to the Current Ratio and Quick Ratio, PBG has enough current assets to pay off their current liabilities. However, what is a cause for concern is the LT Debt/Equity ratio of 4.64.

Quarter/ Year
Q2 2008
Q3 2008
Q4 2008
Q1 2009
Total Long Term Debt (Millions)
$   3,476
$   3,474
$   4,784
$   5,521
Source: Yahoo! Finance
Since Q2 2008 to Q1 2009, the long term debt for the PBG has increased by 37%. This can hurt future earnings for PBG as the interest expense will play a negative impact on their bottom line. 
On July 7, PBG will be reporting their Q2 2009 results. We should pay careful attention of their revenue stream as it has shown weakness for the past three quarters, their bottom line, and to see if they continue to use debt to finance their business.

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