Each week we run a DCF (Discounted Cash Flow) model on a company from our watchlist. This week’s pick: PepsiCo, Inc. (PEP).
Profile
PepsiCo is a global leader in beverages and convenient foods, with iconic brands such as Pepsi, Gatorade, Lay’s, and Quaker. Its vast distribution network and diversified portfolio provide strong pricing power and resilience across economic cycles. The company continues to deliver consistent revenue growth through innovation, international expansion, and premiumization. While inflationary pressures and changing consumer preferences remain challenges, PepsiCo’s scale, brand loyalty, and disciplined cost management support steady cash flow generation and shareholder returns.
DCF Analysis
Inputs
Discount Rate: 10%
Terminal Growth Rate: 3%
WACC: 10%
Forecasted Free Cash Flows (in billions USD)
2025: $7.5B → PV: $6.82B
2026: $7.9B → PV: $6.56B
2027: $8.3B → PV: $6.30B
2028: $8.7B → PV: $6.06B
2029: $9.1B → PV: $5.82B
Total Present Value of FCFs = $31.56B
Terminal Value Calculation
Using perpetuity growth model with 2029 FCF = $9.1B:
TV = (9.1 × 1.03) ÷ (0.10 − 0.03) = 134.0B
Present Value of Terminal Value = $83.89B
Enterprise Value
Enterprise Value = 31.56B + 83.89B = $115.45B
Net Debt
Cash: $9.27B
Total Debt: $44.95B
Net Debt = $35.68B
Equity Value & Per-Share Value
Equity Value = 115.45B − 35.68B = $79.77B
Shares Outstanding: ~1.37B
Intrinsic Value per Share = $58
Conclusion
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DCF Value: $58
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Current Price: ~ $151
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Margin of Safety: ≈ –61%
PepsiCo continues to be a dominant consumer-staples franchise with strong brands, predictable cash flows, and a durable competitive moat. But using conservative assumptions, the stock appears to trade well above your intrinsic valuation.
In other words, the market seems to be pricing in sustained growth, margin expansion, or other upside risks. For a value investor, PEP probably makes more sense as a quality compounder (i.e. a relatively safe, stable long-term hold) rather than a deep value buy.
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