Pepsi Co, Inc. Financial Analysis

In the last five years, PepsiCo, Inc. (PEP) has achieved rapidly increase from its sales revenue to its shareholders’ equity value. This report provides an overview of PEP’s financial performance in the last five years and in the next five years and projects PEP’s equity value by using free cash flow valuation, sensitivity analysis, scenario analysis and Monte Carlo simulation.

To get the most precise estimated result, we use several key assumptions for this report:

1) We assume that the revenue grow rate is 14.6%, from 2012 to 2016, which is the average revenue grow rate of last five years from 2007 to 2011.

2) We assume that the revenue grow rate from 2017 is 2%.

3) We assume that interest rate is based on treasury bills result.

Based on these assumptions, we get the result that weighted average cost of capital (WACC) of PEP is 9.07%. The current numbers of shares outstanding is 1.55 billion. Therefore, if the sustainable growth rate after 2017 of PEP is 4%, the equity value of PEP will be $115 billion and then the estimated price per share of PEP will be $74.19. The close price of PEP on December 4, 2012 is $69.85, so the stock is a little bit undervalued. However, if the sustainable growth rate after 2017 is 3%, the equity value of PEP will be $97 billion and then the estimated price per share of PEP will be $62.64. The stock will be a little bit overvalued. In summary, if the sustainable growth rate is between 3% and 4%, the stock price is approximately fair valued.

This report is designed to show more detailed information about PEP’s value estimation, including main assumptions, outputs, and simulation analysis. The first part will introduce main assumptions in the Income Statement and the Balance Sheet and show the result of the pro-forma financial statement. The second