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  • saltmakr saltmakr Aug 12, 1998 1:52 PM Flag

    Buffett buying Pepsi?

    AynRand23,

    Could you post your analysis of
    Pepsi. I am interested to know why you think it's a
    steal. I am not disagreeing as I know very little about
    PEP. Just curios as to what others emphasize when
    evaluating companies.

    Thanks in advance.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • I think it's a steal because interest rates are
      5.6% and show no signs of rising anytime soon, Pepsi
      is second in what is basically a duopoly industry,
      and Frito Lay is one of the most dominant companies
      in the U.S. Potato prices in Florida have
      skyrocketed lately and since Pepsi gets a lot of its potatoes
      from Florida (?) its price is down. Buying when a
      stock is down due to bad weather is usually a good way
      to make money.

      On the negative side, the
      company is putting less emphasis on the baby boomers and
      more on "generation next" (14-22 year olds), a segment
      of the U.S. market which is shrinking relative to
      that of people over 40. I hope for their sake they
      don't continue to do this much longer.

      • 2 Replies to AynRand23
      • the analysis left out a few things including what
        is Pepsi's:

        10 year return on shareholder
        equity
        debt to equity
        gross margin
        operating
        margin
        net margin
        working capital
        inventory
        turns
        annual recurring capital costs
        reported and true book
        value
        collection time

        and most
        importantly...

        intrinsic value listing all assumptions. I hope the 5.6%
        interest rate isn't an assumption because Warren Buffett
        has specifically warned against using historically
        low rates to calculate intrinsic value because it
        artifically inflates intrisnic value.

        I grant the
        duopoly. Although it can only be applied to the fountain
        business and not to the other 'drink' businesses in which
        Pepsi may or may not compete in.

        As for Frito
        Lay, it has numerous competitors. I'd rather see Pepsi
        sell off that operation unless they can show that the
        operation benefits current returns on shareholder equity.
        If it doesn't, then there's no point in keeping the
        Frito Lay brand.

        JimC
        The Toronto Investment
        Club
        http://torontoinvest.ndsn.com

      • Let's see, Pepsi is second in a two company
        industry. That looks like last to me. The only hope for
        this sucker is to spin off the Frito Lay division into
        a separate company (Coke ain't into foodstuffs, you
        know) and concentrate on making their beverage business
        competitive with the "real thing". ljh

 
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