What Drove PepsiCo’s 2Q17 Earnings?

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Part 7
What Drove PepsiCo’s 2Q17 Earnings? PART 7 OF 7

How PepsiCo’s 2Q17 Results Affected Its Valuation

Impact of 2Q results

As of July 12, PepsiCo (PEP) was trading at a 12-month forward PE (price-to-earnings) ratio of 21.7x. PepsiCo’s valuation multiple fell 2.5% on July 11, the day the company announced its fiscal 2Q17 results. However, it recovered 1.0% on July 12.

How PepsiCo’s 2Q17 Results Affected Its Valuation

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Valuation of peers

As of July 12, PepsiCo’s nonalcoholic beverage peers Coca-Cola (KO), Dr Pepper Snapple (DPS), and Monster Beverage (MNST) were trading at 12-month forward PEs of 23.6x, 19.3x, and 33.2x, respectively.

Currently, PepsiCo’s valuation multiple is higher than the forward PE of 18.0x of the S&P 500 Index. The 12-month forward PE is based on several parameters including growth expectations.

Analysts’ expectations

Analysts expect PepsiCo’s revenue to rise 1.5% to $63.7 billion in fiscal 2017. They expect the company’s adjusted EPS (earnings per share) to grow 6.4% to $5.16 in fiscal 2017.

Innovation, focus on premium products, and productivity measures are expected to drive PepsiCo’s fiscal 2017 results. However, raw material inflation, currency headwinds, and macro challenges in certain key markets are expected to shadow the company’s fiscal 2017 results.

Also, weakness in soda volumes continues to be a drag on PepsiCo’s performance. As discussed in part four of this series, PepsiCo is focusing on the expansion of its noncarbonated beverage portfolio. Consumers are opting for noncarbonated beverages like bottled water and ready-to-drink tea over sugary soda beverages. PepsiCo’s focus is on the innovation of healthier snack food and beverage options that contain more natural ingredients and less sugar, salt, and saturated fats.

For more updates, visit our Nonalcoholic Beverages page.


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