Essay Example on Pepsi Stock Undervalued by $59: Analysis Reveals

Introduction

From the analysis, the stock for Pepsi is undervalued. This is because the current stock price is $134.02 and their price has been ranging within the above range as indicated by Berthon, Treen & Pitt, (2018). The value is low comparing to the computed intrinsic price that is $193.24. Pepsi Company is a production company that also markets and sell food and beverage products across different countries in the world. Last year the company generated $63 billion from sales. The company has been known from their carbonated drinks such as Pepsi and the mountain dew as well as foods and snacks that have contributed to about 50% of sales. The company has about 23 brands that go up to $1 billion which include Lipton, Pepsi, mount dew, Lipton and lays or Doritos chips. Although the current trend among the consumers is eating and drinking foods with few calories and less sugar, Pepsi has not suffered as the rest of the food companies suffer. This is because the company produce products that it terms as ‘Better for you’ and the sales are from their products that have less than 70% calories from the added sugar. The company have innovated products that are appealing to the different types of customers.

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Analysts’ Recommendations for the Pepsi stock

As indicated by Ebadati & Mortazavi, (2018), it is recommended that the people with Pepsi stock to hold and that those that do not have to purchase and consider buying them and get hold of them. This is because the stocks are currently undervalued and this means the market price will shoot greatly after the current value is realized. Therefore, those that will purchase the stock in this period when the stock price is undervalued shall register a very high profit as compared to the ones that will purchase them later. Therefore, the best option is purchasing and holding the stock and wait for the realization of the true value.

The stock purchase are reiterated by Ebadati & Mortazavi, (2018) as having a rating score of A. the strength of the company is seen in the multiple areas such as the growth of revenue, the notable return on the equity, the valuation levels that are reasonable as well as the stock price increase from the past year expanding the profits margin. I feel the strengths are outweighing the fact that the company had a poor debt management on the measures evaluated by Jamegh, Kassam & Sabih, (2018). The revenue growth for Pepsi is outpaced slightly with an average of 1.7%. In the same quarter of the year, the revenues increased slightly by 4.1%. The growth does not appear to be trickled down on the bottom line for the company that display earnings that are stagnant on the shares. There is an improvement on the return on equity that are compared to the same quarter in the year period. This is considered the modest strength to the organization. Comparing to the other organizations in the market, the returns on Pepsi are exceeding those of the average industry.

He Company has report on flat earnings per share in the recent quarter. There are volatile earnings recently reported by the company but there are feelings of a poised for the EPS growth in the year coming. There is evidence by Jamegh, Kassam & Sabih, (2018) indicating an increase in Pepsi from the bottom line indicating an earnings of $4.02 vs. $3.91 in the previous year. There is also expected improvements of the earnings by the company. After the fluctuation of the stock price in the previous year, there is not much change of the net price for PEPs. There is however possibility of the weak earnings to have played a role in the flat results but this should not make you lose sight of the fact that the market performance is measured by the S&P 500 index that was essentially similar. Therefore looking ahead, unless there are contradictions in the bear market conditions, there is a very high potential for the stock despite it having risen in the past year.

Do you agree with them and would you consider purchasing the stock? Why?

From research by Jamegh, Kassam & Sabih, (2018) indicating the undervaluing of the stock, I agree with the analysis. The stock will most likely give the investor a very high profit. The company offer a high earning per shares even without the consideration of the analysis. Therefore, I would purchase the stock even if there is no realization of the true value as I will still benefit as an investor. There is a high possibility of realization of the true value when the stock is an added advantage and therefore the stock is worth the input of any investor.

Furthermore, the company has a delicious brand power with a competitive ability which is a very important factor to consider during the long-term decision making on investment. Although it comes behind coca cola, the company has a remarkably valuable portfolio for the beverage drinks and the branded snacks that include not only traditional products but also the have a high growth that is offered towards the customers that are health conscious. From the consumption trends, the company has bet on it for a long time and reclassified their portfolio in three categories namely ‘fun for you’ that include traditional soda and snacks, ‘better for you’ that is a low-calorie version of the products as well as the ‘good for you’ that offer healthy products compared to the rest of the brands. Furthermore, the company owns 22 brands that are different, snacks and healthy beverages such as water, sporting drinks and juice that are accounting to the grown share in drinking revenue.

To add on that, Petrescu et al (2018) indicates that Pepsi has a sweet financial performance being a market leader in the stable and mature industry and therefore it is very possible for the company to find significant growth opportunity. Most of the global currencies have been depreciating against the US dollar especially in the markets that are emerging and this is seen to be hurting the company profits and sales. However, the company is able to deliver a stable financial performance. Petrescu et al (2018) demonstrates the revenue growth of 5% in 2015 and indicates an expansion in the gross margin over the prior year. The company is demonstrated to have a 10% delivered increase in the currency earnings per share that was above the initial management target of 7%. Therefore, the business is seen to be producing massive quantities of cash as there is an indication of more than 12% free cash flow during the last year financial year. There is a distribution of about $9 billion dollars to the company investors as dividends as well as buybacks. The company is seen to be aggressively focused on cutting costs via the productivity savings. There is an indicated $5 billion saving as the company target to cut the annual expenses.

Conclusion

Finally, the company has a sparkling growth of dividends that are recorded by Petrescu et al (2018) showing an increase each year. The dividend payout ratio is therefore very safe as the management commits to the consistent dividend growth. This shows that Pepsi has a capability and also willingness to continuously reward the investors with the increasing dividends over the long-term period. There is also some confidence indicated by the CEO who comments on ensuring that the dividends continuously grow per share which will be the great pride for the company and this is a very vital element to the investors and the shareholders. For the dividend’s investors, the investment looks like a solid to buy. This is because it offers reliable, slow growing dividends and a growth opportunity in the snack and the international markets which is recession resistant that is based on the well-known consumer staple brands.

References

Berthon, P., Treen, E., & Pitt, L. (2018). How truthiness, fake news and post-fact endanger brands and what to do about it. Marketing Intelligence Review, 10(1), 18-23.

Ebadati, O. M. E., & Mortazavi, M. T. (2018). An efficient hybrid machine learning method for time series stock market forecasting. Neural Network World, 28(1), 41-55.

Jamegh, R., Kassam, A., & Sabih, S. (2018). Safety Stock Identification in Beverage Soft Drink Industries by Using Dynamic Fuzzy Logic. Journal of University of Babylon for Engineering Sciences, 26(9), 90-101.

Petrescu, M., Mangleburg, T., Ben Mrad, S., & O’Leary, K. (2018). Reciprocal influences and effects of viral NWOM campaigns in social media. Journal of Marketing Communications, 1-18.