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Can PepsiCo’s Valuation See Some Upward Revision in 2016?

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Nov. 20 2020, Updated 2:53 p.m. ET

Current valuation

As of January 28, 2016, PepsiCo (PEP) was trading at a forward PE (price-to-earnings) ratio of 20.6x. The company is trading at a higher valuation compared to the S&P 500 Consumer Staples Index, which was trading at a forward PE of 19.9x. PepsiCo is also trading at a premium compared to the S&P 500 Index, which was trading at a forward PE of 15.5x as of January 28.

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Valuation of peer group

As of January 28, Coca-Cola (KO) was trading at a forward PE of 21.2x. Analysts expect Coca-Cola’s adjusted EPS to decline by 2% and revenue to decline by 4% in fiscal 2015 compared to the prior year.

As of January 28, Dr Pepper Snapple (DPS) and Monster Beverage (MNST) were trading at forward PEs of 21.4x and 34.9x, respectively. These companies are trading at a premium valuation compared to PepsiCo and Coca-Cola due to higher expected growth rates. PepsiCo and Coca-Cola together account for 1.6% of the portfolio holdings of the iShares Russell 1000 ETF (IWB).

Dr Pepper Snapple’s fiscal 2015 adjusted EPS and sales are expected to grow by 10% and 2%, respectively. Monster Beverage’s adjusted EPS and sales are both expected to rise by 11% in fiscal 2015.

Expected changes

In 2015, PepsiCo’s forward PE increased by 9.7%. PepsiCo expects its fiscal 2015 core EPS to come in at $4.54 compared to $4.63 in fiscal 2014. Analysts expect PepsiCo’s adjusted EPS (earnings per share) to decline by ~1% to $4.57 and revenue to decline by 5% to $63.1 billion in fiscal 2015 ended December 26, 2015.

PepsiCo’s valuation might increase in 2016 if the company is able to deliver improved revenue and margins that can offset the impact of currency headwinds. Currently, analysts expect the company’s adjusted EPS in fiscal 2016 to increase by 5% and revenue to be flat.

For more updates, please visit our Nonalcoholic Beverages page.

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