1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (245) 

Is Pepsi a Value Stock?

February 09, 2012 | About:

Shares of Pepsi (NYSE:PEP) are sharply lower today after announcing a major restructuring last night.

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.

Rating: 2.5/5 (14 votes)


Please leave your comment:

Performances of the stocks mentioned by matsandalex

User Generated Screeners

althekearoct 17 user defined screen
althekearPE >50th percentile of INDUSTR
althekearLow EV/EBITDA
althekearLynch inspiret Oct 17
althekearsg hk best
althekearDividends Basic
althekearKISS Dividend Strategy
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat