PEPSICO INC. $64 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $102.4 billion; Price-to-sales ratio: 1.6; Dividend yield: 3.2%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft-drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Tropicana fruit juices and Quaker Oats.
PepsiCo recently raised its selling prices in response to rising ingredient costs. That’s the main reason why its sales rose 13.3% in the quarter ended September 3, 2011, to $17.6 billion from $15.5 billion a year earlier. In June 2011, PepsiCo paid $3.8 billion for Wimm-Bill-Dann, Russia’s largest dairy and juice company. This accounted for a third of the sales gain. Without unusual items, mainly costs to integrate recent acquisitions, earnings per share rose rose 7.4%, to $1.31 from $1.22.
PepsiCo continues to expand internationally. In November 2011, it paid an undisclosed sum for privately held Grupo Mabel, Brazil’s second-largest maker of cookies, crackers and snack foods. This business complements the foods that PepsiCo already sells in Brazil, including Frito-Lay chips (sold under the Elma Chips brand) and Quaker Oats snacks.
The company should earn $4.40 a share in 2011. The stock trades at a reasonable 14.5 times that estimate. The stock also trades at 13.6 times PepsiCo’s projected 2012 earnings of $4.70 a share.
PepsiCo is a buy.
