As Pepsi Turns to Healthy Products, Is Its Stock a Healthy Investment?

Some investors forget that PepsiCo  (NYSE: PEP  ) is a diversified food and drink conglomerate. Therefore, just comparing it to beverage companies such as the Coca-Cola Company (NYSE: KO  ) or Dr Pepper Snapple Group (NYSE: DPS  )  does not give the full picture of the breadth of its operations. Likewise, just comparing PepsiCo to Mondelez International  (NASDAQ: MDLZ  ) , which has a larger concentration in snacks, is not warranted either.

PepsiCo is home to both food and beverage products that are popular around the world. The company's brands include its traditional Pepsi line of sodas, Mountain Dew, Doritos, and Lay's potato chips. Under Chairwoman and CEO Indra Nooyi, PepsiCo has further divided its products into the "Fun For You" category, which represents traditional snack foods and sugary beverages, and the "Good For You" category, which represents its growing line of healthy products such as Sabra hummus. Moreover, the company's Lay's, Gatorade, Lipton, Tostitos, and Fritos brands each generate over $1 billion per year in revenue.

However, how does PepsiCo stack up valuation-wise against its beverage and snack competitors?



Forward P/E

5-yr. PEG












Dr Pepper Snapple










Data Source: Morningstar

Mondelez appears quite expensive with a P/E of 34 as Coca-Cola follows far behind it with a P/E of 22. The S&P 500 currently trades at a P/E of 18 so Mondelez is richly valued in comparison. Only Dr Pepper Snapple trades at a slight discount to the S&P 500's current P/E with a P/E of 17, the lowest among the four companies.

Dr Pepper Snapple is also the bargain of the group on a future basis with a forward P/E of 15. The spread among the forward P/E ratios is not as great, however, as it is with the trailing P/E ratios. Dr Pepper Snapple's P/E of 15 does not greatly exceed the 19 of Mondelez, the company with the highest P/E among the four companies.

Also, the companies' five-year PEG ratios do not differ as vastly as their P/E multiples. Nonetheless, all of the companies seem quite expensive based on this metric as all of them have PEG ratios of over 1. A PEG of 1 indicates a fair valuation and a ratio below 1 indicates a discount. As with the trailing and forward P/E ratios, Dr Pepper Snapple comes out on top with the lowest PEG ratio at 1.9. As previously mentioned, however, Dr Pepper Snapple's PEG of 1.9 is not a resounding call to buy its stock even though this is the lowest ratio among the four.

On a cash flow basis, Coca-Cola is the most expensive while Mondelez steals Dr Pepper Snapple's shine with the lowest valuation. Mondelez's P/CF multiple of 11 comes in slightly ahead of Dr Pepper Snapple's P/CF of 13. The P/CF multiples of Coca-Cola and PepsiCo are not much higher than those of the other two companies, coming in at 16 and 15, respectively.

PepsiCo and the other three are not screaming buys
These valuation metrics show a mixed bag and unfortunately they do not give a clear conclusion as to which company's stock is a better investment. Dr Pepper Snapple looks the most attractive on the trailing P/E, forward P/E, and PEG bases, but loses its luster to Mondelez on a cash-flow basis. Contradictorily, Mondelez is the most highly valued of the four companies on the metrics other than cash flow.

PepsiCo did not appear cheapest among the four on any of the valuation metrics but it did not appear overvalued either. The company's underlying businesses are strong but its stock seems to be a little ahead of its business. Still, the stock offers a nice dividend yield of 3.1% -- but if you are an investor looking for capital appreciation, better opportunities than PepsiCo's stock likely exist given its current valuation.

If you want a healthy investment, invest in the next wave of health care innovation
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And the technology behind is poised to set off one of the most remarkable health care revolutions in decades. The Motley Fool's exclusive research presentation dives into this technology's true potential, and its ability to make life-changing medical solutions never thought possible. To learn how you can invest in this unbelievable new technology, click here now to see our free report.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2976849, ~/Articles/ArticleHandler.aspx, 9/4/2015 8:22:15 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Andrew Sebastian

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 0.00 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:03 PM
DPS $76.95 Down +0.00 +0.00%
Dr Pepper Snapple… CAPS Rating: ****
KO $39.16 Down +0.00 +0.00%
Coca-Cola CAPS Rating: ****
MDLZ $43.24 Down +0.00 +0.00%
Mondelez Internati… CAPS Rating: ****
PEP $92.13 Down +0.00 +0.00%
PepsiCo CAPS Rating: *****