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How PepsiCo’s Valuation Looks ahead of Q4 Results

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Forward valuation

PepsiCo’s (PEP) 12-month forward PE ratio was 19.6x as of February 11. PepsiCo’s forward valuation multiple has risen 3.3% since the announcement of its third-quarter results in October 2018.

PepsiCo’s forward valuation multiple is currently lower than Coca-Cola (KO) and Monster Beverage (MNST) but higher than the broader market. As of February 11, Coca-Cola and Monster Beverage were trading at 12-month forward PEs of 22.9x and 30.0x, respectively, while the S&P 500 had a forward valuation multiple of 16.1x.

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Growth expectations

PepsiCo is seeing continued strength in its Frito-Lay North America business. PepsiCo has been taking several steps to improve its beverage business, but weak volumes in the carbonated beverage portfolio are impacting the company’s beverage sales. In the first nine months of 2018, PepsiCo’s North America Beverages segment experienced a 1% fall its volume due to a 3% decline in its carbonated beverage volume, partially offset by a 2% rise in its noncarbonated beverage volume.

Analysts expect PepsiCo’s revenue to rise 1.9% to $64.7 billion in 2018 and adjusted EPS to increase 8.2% to $5.66. Currently, analysts are forecasting revenue growth of 3.0% in 2019, while adjusted EPS are expected to rise 3.7%.

While commodity inflation is expected to weigh on PepsiCo’s bottom line, analysts expect higher pricing and productivity initiatives to mitigate the impact of rising costs.

Share repurchases, which lower the average share count, are also expected to benefit PepsiCo’s EPS. In 2018, PepsiCo planned to return about $7 billion to shareholders through share repurchases of $2 billion and dividends of about $5 billion.

PepsiCo’s fourth-quarter and full-year 2018 results and outlook, which are scheduled to be released on February 15, are likely to impact the company’s valuation multiple.

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