PepsiCo’s 4Q15 Results: The Impact on the Stock’s Valuation
Why PepsiCo Delivered Mixed Q4 Results and a Cautious Outlook
Current valuation
As of February 12, PepsiCo (PEP) was trading at a 12-month forward PE (price-to-earnings ratio) of 21.0x, up 2% since the announcement of the company’s 4Q15 results on February 11. The company is trading at a higher valuation multiple than the S&P 500 Consumer Staples Index (forward PE of 20.3x) and the S&P 500 Index (forward PE of 15.4x).
Fiscal 2016 expectations
Analysts expect PepsiCo’s fiscal 2016 revenue to decline 1% and adjusted EPS (earnings per share) to rise 3% year-over-year. In fiscal 2015, PepsiCo’s revenue fell 5% and adjusted EPS fell 1%. Currency headwinds continued to weigh on the company’s results.
PepsiCo’s valuation multiple has increased 1.1% since the start of the year. The company’s average PE multiple is 20.4x on a year-to-date basis. PepsiCo constitutes 4.6% of the Consumer Staples Select Sector SPDR Fund (XLP).
Comparison with peers
Rivals Coca-Cola (KO), Dr Pepper Snapple (DPS), and Monster Beverage (MNST) were trading at forward PEs of 22.2x, 21.3x, and 31.2x, respectively, as of February 12. Currently, analysts expect Coca-Cola (KO) to report a 3% decline in its revenue as well as adjusted EPS in fiscal 2016. The company reported a 4% decline in fiscal 2015 revenue and a 2% decline in fiscal 2015 adjusted EPS. Coca-Cola has significant exposure to carbonated soft drinks, which face sluggish volumes in developed markets. For more information, read Productivity Initiatives Help Coca-Cola Beat 4Q15 Estimates.
Dr Pepper Snapple is scheduled to announce its 4Q15 results on February 17. The company delivered strong performance in the first three quarters of fiscal 2015. Analysts expect Dr Pepper Snapple’s full-year revenue and adjusted EPS to rise by 2% and 10%, respectively, in fiscal 2015.
Monster Beverage is expected to announce its 4Q15 results later this month. The company’s premium valuation compared to PepsiCo and other soda makers is justified by its higher expected revenue and earnings growth rate. Analysts expect Monster Beverage to post revenue and adjusted EPS growth of 11% and 12%, respectively, in fiscal 2015, driven by strong demand for energy drinks.
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