Tags: Pepsico | branching | out | PEP

Pepsico Branching Out into Healthier Snacks

By    |   Wednesday, 11 April 2012 11:05 AM

Pepsico (PEP) has come a long way from its humble Southern roots as a global soda rival to Coca-Cola (KO), branching out into healthier snacks and drinks in a bid to grow past fizzy sugar water. Besides soft drinks, the company makes hundreds of branded food products, including Frito-Lay and Quaker, and sells in 200 countries and territories.

Its beverage and snacks business extends into Latin America and Europe and already includes brands as varied as Aquafina bottled water, Tropicana juices, Gatorade sports drinks and Quaker brands Aunt Jemima, Rice-a-Roni, and the Cap’n Crunch and Life cereals and, under Frito-Lay, the Sabra brand of dips and spreads.

In the 2011 results, management said that it would increased advertising and marketing spending by between $500 million and $600 million this year, mostly in North America, and refocus on a five-year productivity program. In addition, the company expects to increase its hold on the global market for salty snacks such as potato chips while expanding into whole-grain alternatives.

Beverages continue to bring in 52 percent of revenues, yet Pepsi says it will focus on “nutrition” brands such as Quaker, Tropicana and Gatorade in a bid to tackle the $500 billion “health and wellness” market. “Building from our core brands, we believe that we are well-positioned to grow our global nutrition portfolio,” management said.

Analysts expect international markets to drive growth for Pepsico going forward, such as the recently completed purchase of Russian food and beverage maker Wimm-Bill-Dann Foods OJSC for $3.8 billion. Product innovation is “trend setting” for the industry, according to S&P Equity Research analysts.

“Its focus on health and wellness should continue to drive the top line, and we look for strong returns to shareholders in the form of dividends and share repurchases,” S&P said in a report.

Market giant

Pepsico is a $102.95 billion market cap firm, more than 10 times larger than the beverages sector average. Its trailing 12-month P/E ratio is 16.13, right on the sector average.

The company’s projected five-year price-to-earnings-growth (PEG) ratio is 2.12, just under the sector average. Its expected earnings per share growth in the coming year is 8.56 percent, compared to 10.28 percent for the beverages sector.

Analysts are bullish on Pepsi, with not a single sell nor underperform call among the major banks and research firms. Credit Suisse has Pepsico at outperform, as do the analysts at Standard & Poor’s Equity Research.

UBS, Ned Davis Research and Deutsche Bank have buy ratings on the stock.

“PEP is on a new buy signal. PEP’s buy rating is due to its NDR Equity Focus Rank of 90.84, which exceeds the required buy rating rank of 90,” reported Ned Davis Research on April 8. “On a relative basis, PEP has strong technicals and fundamentals.”

Pepsico next reports on April 26.

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Wednesday, 11 April 2012 11:05 AM
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