The following three stocks are around the $100 mark for the past few weeks and I have been wanting to write about them for a while. I hold positions in all three stocks and hence have been following them quite closely. Each stock is in a different sector and different growth phase and also moving in different directions lately. The three stocks are PEP, JNJ and DIS. I initiated positions in these companies in the recent past (within the last 6 months) and have been adding to these positions as part of my weekly purchases as and when price made sense.
In part 1 of this post, I am going to look at PEP’s numbers more closely. This is just my quick and dirty process to look at the numbers like Revenue, Income and EPS history and growth and looking at the P/Es and is no means a through analysis of all the data points and charts and numbers.
Pepsi has been on a great run for the past year. The price was in high 70s in Feb 2014 and now it is approaching $100. The stock also crossed the $100 mark briefly a couple of times. The stock jumped from around $95 to the current levels when the latest quarterly results beat expectations. But is the stock fairly valued at this price?
- The revenue increased from 57,838 Mil in 2010 to 66,683 Mil in 2014, but has largely remained constant from 2011 to 2014. There is not just enough growth in the top line.
- The net income increased from 6,320 Mil in 2010 to 6,513 Mil in 2014.
- The EPS increased from 3.97 in 2010 to 4.31 in 2014 primarily due to reducing in outstanding shares from 1,590 Mil in 2010 to 1,509 Mil in 2014. The EPS growth represents a CAGR of 2.07%. Going back to 2005, the EPS growth from 2005 to 2014 represents a CAGR of 6.57%.
- The lack of EPS growth is reflected in the P/E currently being at 23.2 compared to PEP’s 5 year average P/E of 18.1.
- Let’s assume the EPS growth to be a 5% for 2015. This is higher than the recent growth, but less than the average growth in 10 years. Even with this optimistic number, the EPS can be projected to be 4.53 for 2015. Applying the average P/E of 18.1 will result a price of $82.00. Applying the current P/E of 23.2 will result in a price of $105.09.
- At the current price (~$99.00), the projected dividend yield is 2.65%.
- The stock definitely looks expensive looking at these numbers. Of course in current market conditions, there is a premium for a stock like PEP due to its consistent dividends and dividend growth. So considering these facts, I am hoping that a price point between $90 and $95 would be a reasonable price. I was looking to add more PEP as I mentioned in my weekly purchases post, but looking closer at the numbers, I would like to wait and see if I can get a better price point for the stock.
- Morningstar currently has a 3 star rating on the stock with a fair value of $95.00.
What do you think about PEP’s current price and valuation?