Equity prospects

PEPSICO

John Royden, Head of Research

Price£1.18

52 week high-low£1.18 – £0.98

Net yield2.55%

Hist / pros per24.1– 22.9

Equity market cap£168,434m

Pepsi was first introduced in 1893, the creation of a US pharmacist who sought to invent a drink designed to boost energy. Success came in the midst of the great depression in 1936, when they aired a popular ad campaign encouraging price comparison between Pepsi and their main rival throughout history, Coca Cola. 

PepsiCo, Inc. was established through the merger of Pepsi-Cola and Frito-Lay in 1965. This merger brought with it many well-known brands including Lays and Doritos. 

Other than their main Pepsi brands, Mountain Dew and Gatorade have enjoyed a leading position in the US market, prompting them to expand further afield. Gatorade, obtained thanks to the Quaker Oats merger in 2001, commands a leading 29% share in the fast growing global sports and energy drinks market.

M&A has been fairly quiet in recent years, which CEO Indra Krishnamurthy Nooyi says is because they haven’t found that ‘gem’ of a company yet. They certainly have the financial firepower to make an acquisition. PepsiCo generated $7.4 billion in free cash flow in 2016, created in part by billions of dollars in cost saving measures since 2010 and steady top line growth. With c.$9.2 billion in cash on their balance sheet, perhaps they are preparing themselves for something industry-changing. 

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