PepsiCo - Stocks

PepsiCo
Min Spread *
80
Target Spread *
80
Leverage/Margin
1:5
Commission
0
Swap point Long/Short
-2.80 / -1.22
Nominal Value of one lot
100
Trading hours
16:30 - 23:00

Instrument description

Pepsi is one of the world’s most popular business company. Pepsi is one of the two global names in the beverage market, along with Coca Cola and both companies share an intense competition and rivalry. Pepsi is a multinational American business company that dominates in the food and beverage segment.

Pepsi has its core business in manufacturing, marketing, distribution, and sales of a wide range of carbonated drinks, snack food, and other consumer products. Pepsi Co was formed in 1965 as a result of a merger between Pepsi Cola Company and Frito Lay Inc. Over the years, to increase its brand image and worth, Pepsi has made numerous acquisitions that include Tropicana Products, Gatorade, and Quaker Oats Company.

Pepsi is a global brand name, and its products are sold in more than 200 countries of the world. PepsiCo is the second biggest company in food and beverage according to revenue and just behind Nestle. In North America, Pepsi is the largest company in the food and beverage industry based on revenue.

The bottling and distribution of beverages and other variety of drinks are done by PepsiCo itself and other licensed bottlers. Pepsi Cola was the first American product that was manufactured, marketed, and distributed in Russia.

Pepsi was launched as ‘Brad’s Drink’ in 1893 but now is a multi-billion company. Pepsi is known all over the world due to its iconic ‘globe’ logo, which was designed and developed in the 1950s, which represents a bottle cap with red, white, and blue swirls.

Pepsi is considered one of the most valuable business companies due to its market capitalization. The company is one of the leading companies in the soft drinks segment, and its market value as of 2020 is $11 billion. Pepsi is one of the most advertised drinks in the US. Pepsi is based in Harrison, Purchase, New York, and it has almost 267,000 employees working all over the world. The global net value of Pepsi is $67 billion each year, with a profit of almost $7.31 billion per year.

Pepsi invests heavily in Research and Development (R&D) with a budget of $711 million, and Pepsi spent nearly $3 billion on advertisements alone in 2018. Pepsi’s market share in the US is 8%. Popular products of Pepsi include the iconic Pepsi soft drink itself along with Miranda, 7 Up, Mountain Dew, and Pepsi Max in the drinks section while Pepsi also produces and distributes Lays, Doritos, Cheetos, Aquafina mineral water, and Quaker Foods.

Pepsi has used many popular media and sports personalities over the years to market its products, which include Michael Jackson, Madonna, Cindy Crawford, Britney Spears, One Direction, Janet Jackson, Christina Aguilera, and Beyoncé. Pepsi was ranked 29th in the most valuable business company category by Forbes in 2019. The food business of Pepsi accounts for 54% revenue, while the contribution of the beverage segment is 46%.

History of Pepsi

Pepsi was developed in a drugstore by Caleb Bradham in the 1880s, who was a pharmacist and industrialist. The original recipe of Pepsi included sugar, spices, vanilla oils, African kola nuts, and carbonated water. Bradham made the drink that could help with digestion and cure upset stomach and ulcers.

Pepsi was first introduced as ‘Brad’s Drink’ in 1893 in New Bern, North Carolina, USA. As Pepsi was made to treat dyspepsia (upset stomach), the drink was renamed to ‘Pepsi’ in 1898. Bradham started his own beverage business, where he mixed the syrup and delivered it to soda fountain shops where carbonated water was added. In the following four years, Bradham achieved massive success and closed his drugstore and put his focus on the production and distribution of his drink.

Bradham patented the Pepsi-Cola trademark, and in 1905, the logo was also designed by a neighbor of Bradham for only 97 shares of Pepsi. In 1905 Bradham owned two bottling franchises. After five years, there were 40 Pepsi Cola franchises in over 40 states of the US.

After initial years of prosperity, Pepsi Cola’s business suffered after World War 1 in the 1920s, and the company tried to reorganize and restructure. Another beverage giant at that time, Coca Cola was asked to purchase Pepsi Cola in 1922 and 1933, but it was declined.

In 1923, Bradham went bankrupt. In 1926, the Pepsi Cola logo was redesigned for the first time. Due to the Great Depression in 1931, Pepsi Cola went bankrupt on June 8, and the syrup recipe and trademark is purchased by Charles Guth, who owned his own syrup production in Maryland, Baltimore.

In 1933, the size of Pepsi bottles was doubled, which significantly increased sales. In 1936, Pepsi became a subsidiary of Loft. In 1939, the first radio advertisement of Pepsi was aired on radio. In 1941, Pepsi and Loft Company were merged, and a new company is formed called ‘Pepsi Cola Company.’

In 1964, Diet Pepsi was introduced for the first time, and Mountain Dew is acquired from Tip Corporation. In 1965, Pepsi Cola Company was merged with Frito Lay to form PepsiCo Inc., and Pepsi and Frito Lay became separate divisions of the company. In 1967, Frito Lay launched Doritos tortilla chips for the first time in the US market. In 1974, Peps Cola became the first product to be produced, marketed, and distributed in Russia.

In 1977, PepsiCo acquired Taco Bell, and in 1978, Pizza Hut is acquired. In 1981, Frito Lay introduced the Tostitos tortilla chips. In 1986, PepsiCo purchased the entire Kentucky Fried Chicken (KFC) chain. In 1997, KFC, Taco Bell, and Pizza Hut were split into separate businesses under the name of ‘Tricon Global Restaurants.’

In 1998, PepsiCo acquired Tropicana Products for $3.3 billion. In 1999, Pepsi Bottling Group was split in public trading while PepsiCo is retaining 35% shares. In 2000, PepsiCo purchased Quaker Oats Company for $13.4 billion, and PepsiCo also got hold on popular sports drink ‘Gatorade,’ which was owned by Quaker Oats Company.

In August 2009, PepsiCo offered $7 billion two of its largest bottlers ‘Pepsi Bottling Group’ and ‘PepsiAmericas’; the acquisition was completed in 2010. In February, Pepsi made its largest acquisition by putting two-thirds stake in Wimm-Bill-Dann Foods, which was a big Russian company producing fruit juices and a variety of dairy products. PepsiCo made its entry into the dairy segment by doing a joint venture with Theo Muller, which was called ‘Muller Quaker Diary.’

On May 25, 2018, PepsiCo acquired Bare Foods that made fruit and veggie snack. On August 20, 2018, PepsiCo signed an agreement to purchase SodaStream and help PepsiCo drive towards healthier products. On December 2, 2019, PepsiCo bought BFY Brands and merged it with the Frito Lay division. In March 2020, PepsiCo signed an agreement valued at $3.85 billion to acquire Rockstar Energy.

Pepsi traded on the New York Stock Exchange (NYSE) for 39 years but then decided to move its shares on NASDAQ on December 20, 2017.

Current Business and Investment of Pepsi

Pepsi has a wide assortment of food and beverage products, and almost 22 of those brands contribute to $1 billion in revenue each year. The 22 popular Pepsi products include Pepsi, Miranda, 7 Up, Diet Pepsi, Pepsi Max, Lays, Doritos, Gatorade, Tropicana, Cheetos, Quaker Foods, Brisk, Aquafina, Ruffles, Fritos, Sabra, Sobe, Walkers, Kevita, Propel, Sierra Mist and Starbucks.

Pepsi operates in six segments that are Frito Lay North America (FLNA), North America Beverages (NAB), Quaker Foods North America (QFNA), Latin America, Middle East, and Africa (AMENA), and Europe Sub Saharan Africa (ESSA).

  • Frito Lay North America (FLNA) division accounts for 25% revenue and manages the production, marketing, and sales of snack foods and branded foods in US and Canada. The products include Lays, Doritos, Fritos, Tostitos, Ruffles, and Cheetos. Frito Lay alone contributed to $17 billion in revenue, which was one-quarter of PepsiCo’s total revenue worldwide.
  • North America Beverages (NAB) brings 34% of revenue and oversees the management of the beverage business in the US and Canada. The popular beverages include Pepsi, 7 Up, Miranda, Mountain Dew, Gatorade, Sierra Mist, Aquafina, and Diet Pepsi.
  • Quaker Foods North America (QFNA) unit contributes 4% of revenue and engages in the production, and distribution of cereal, pasta, rice and other food business in US and Canada under different brand names that include Quaker, Cap’n Crunch, Quaker Chewy, Rice-A-Roni, Aunt Jemima, and Life.
  • Latin America segment accounts for 11% of revenue and is involved in the management of beverage, and snack food businesses in the South American region
  • The Middle East and Africa (AMENA) division registers 10% of revenue and is responsible for handling the food and beverage business in Asia, the Middle East, and North Africa. The beverages include most of Pepsi carbonated drinks and Frito Lay products such as Lays, Cheetos, Doritos, Kurkure, and Chipsy.
  • Europe Sub Saharan Africa (ESSA) provides 16% of revenue and deals with beverage and food business in Europe and Central and South Africa region.

Risk and Potential in Pepsi Environment

PepsiCo posted total revenue of 67.16 billion in 2019. The operating income of Pepsi in 2019 was $10.29 billion, while net income was $7.353 billion. The total assets of PepsiCo in 2019 were $78.55 billion. Pepsi is 127 years old and one of the leading brands in the food and beverage segment. SWOT analysis is a common strategic tool used by business companies to examine its current performance and devise measures for sustainable and successful future growth. The SWOT analysis of PepsiCo is given by

  • Strengths

PepsiCo is recognized all over the world and the most popular company in the beverage and snack food industry. The strength of PepsiCo lies in a wide diversity of products in both the beverage and food segment. The popular products include Pepsi, Gatorade, Lays, Mountain Dew, Aquafina, Miranda, Cheetos, Doritos, 7 Up, Walkers, Tostitos, and Tropicana beverages.

Pepsi has a big reach in more than 200 countries. The company runs much Corporate Social Responsibility (CSR) campaigns all over the world in Water conservation, Education, and Healthcare. PepsiCo manages an efficient and effective supply chain network, which ensures that PepsiCo’s products reach even remote areas. PepsiCo runs successful media advertisements and spends heavily on advertising budget along with R&D. PepsiCo is the main sponsor of many global sporting and music events such as the Super Bowl. The company signs all popular sports and media celebrities for branding and promotion.

  • Weaknesses

PepsiCo's weakness lies in its over-dependence on packaged food and carbonated soft drinks. The company could consider to diversify its portfolio of products and offer healthier food to a wider population that avoids carbonated beverages due to high sugar content. PepsiCo is known to experiment with various products, but many times this strategy has failed and affected the brand image.

  • Opportunities

PepsiCo is already a recognizable brand in many developed countries, and the company should effectively use the resources to develop the brand in developing countries with a mass population. PepsiCo can make other key acquisitions to diversify and strengthen its position in the food and beverage industry. PepsiCo can use the digital platform to increase its sales and do effective promotion of the products. The company can provide a range of healthier products for health-conscious consumers.

  • Threats

PepsiCo faces significant challenges due to economic recessions, inflation, changing government policies, and lack of consumer purchasing power as PepsiCo products are sold worldwide, so currency fluctuations also affect the supply and sales. One of the major challenges for PepsiCo is to compete with other global brands such as Coca Cola and Nestle. PepsiCo also faces threats from people who abstain from drinking carbonated drinks and advice others to do so as it increases the risk of obesity. The competitors of PepsiCo are Coca Cola, Nestle, Kraft Foods, Dr. Peppers Snapple Group, and Unilever.

Stock Analysis of Pepsi

Pepsi is listed and actively trades on the NASDAQ with the ticker symbols ‘PEP.’ The company is listed under the ‘Consumer Non-Durables’ Sector, and the industry is ‘Beverages: Non-Alcoholic.’ Pepsi is also a member of other indices such as the NASDAQ-100 Index, S&P-100 Index, and S&P-500 Index.

The all-time high share price of Pepsi was $146.99 on February 14, 2020, and the average price in the last 52 weeks is $134.76.

Pepsi’s shares have grown 19.45% since last year and almost 50% in the last 5 years as compared to shares of Coca Cola that have grown 15.75% and 22.13%, respectively. The market capitalization of Pepsi as of May 2020 was $188.6 billion, while Coca Cola’s was $185.8 billion.

The Coronavirus pandemic badly impacted every business sector, but Pepsi being in the food and beverage segment performed rather well. When the Covid-19 was declared a pandemic on March 11, 2020, PepsiCo’s share price was $129.75, and now it 138.47, which shows an increase of 6.7%.

At the end of the second quarter of 2020, PepsiCo posted Earnings per Share (EPS) of $1.32 per share, with 0.07% growth as expected EPS was $1.25. PepsiCo generated revenue of $15.95 billion, while the expected revenue was $15.47 billion. PepsiCo's current dividend annualized is $4.90 and Yield of 2.98%. Analysts predict that the current stock price will further rise 3.2% this year.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.

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