It appears as though shareholders in Pepsi
As today's Fool by Numbers shows, the company turned in earnings-per-share growth of 14.8% and sales growth of 8.9%, while keeping its margins in line with last year's performance. Driving this quarter's strong growth: the international division, and food sales from Pepsi's Quaker Oats division. The international division's growth is an important development; the company generates a third of its sales from that group, though only a little more than a fifth of its operating profit.
So what's the news, you may ask? I've just helped establish what many of you already know--Pepsi is a fantastic business. What is really burning in investors' hearts and minds is the "reasonable price" question. With a trailing P/E of 22 and an expected growth rate of around 15% in earnings, Pepsi isn't going to meet anybody's definition of "dirt cheap." However, looking at Pepsi from multiple angles reveals a company that I believe is fairly valued to slightly overvalued.
The most glaring evidence? Pepsi's free cash flow, which was up 23% last year. In this most recent quarter, free cash flow was up nearly 75%. Free cash flow is often lumpy, but at Pepsi it has historically been strong. Given that fact, Pepsi maintains a conservative balance sheet with more cash on hand than long-term debt.
The final piece of Pepsi to love is its dividend. The yield is a bit smaller than that of its rival, Motley Fool Inside Value pick Coca-Cola
While I don't consider the shares cheap, I also don't see a five-year low-double-digit return as unreasonable when you consider the impact of the dividend and its continued growth. The chances of a market-beating return are even more likely for those investors who reinvest their dividends regularly.
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