Is Pepsi a Value Stock?
The company announced Thursday that it will cut 8,700 jobs worldwide and spend between $500 and $600 million more on advertising and marketing. Shares responded by selling off 4-5%.
The company forecast 5% lower core constant currency EPS for 2012 over last year. Part of this can be attributed to changes in the forex market and some of the EPS drop off is due to rising costs.
During the conference call, CEO Indra Nooyi said 2012 will be a "transitional year" as economic uncertainty persists. "When the only certainty is uncertainty the whole guidance thing becomes a challenge," she said. "Anything you do in short term just to meet short term guidance would be detrimental to the company in the long term."
Analysts have long pushed for the break up of the company into smaller pieces. For example, most shareholders want Frito Lay and the baked goods division to be spun off into a separate company.
The question is whether Pepsi will start attracting more value investors.
The company decided to raise the dividend 4% to an annualized rate of $2.15 per share.
The stock trades at only 14x earnings, which is far below the historical average. However, the days of 15% growth appear to be over.
The stock only trades at 1.62x sales, which is an extreme valuation.
It appears as though Pepsi might have a floor where value investors might start to accumulate shares at prices below $60 per share.