Should You Put a Little PEP in Your Portfolio?

February 28, 2013

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E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Pepsi qualifies as normal, but it’s still a little on the high side. The balance sheet is in negative territory and could be improved. However, as stated earlier, cash flow is superb. Even levered free cash flow is very impressive at $6.80 billion.

	Debt-To-Equity	Cash	Long-Term Debt
PEP	1.27	$6.62 Billion	$28.36 Billion
KO	0.98	$16.55 Billion	$32.61 Billion
DPS	1.23	$377.00 Million	$2.80 Billion

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T = Technicals on the Stock Chart Are Strong

Pepsi has outperformed Coca-Cola and Dr. Pepper Snapple Group (NYSE:DPS) for every timeframe listed below excluding a three-year timeframe. Since Pepsi and Coca-Cola tend to switch leadership roles in regards to stock performance through the years, it’s important to look at the dividend yield. You might think this would lead to an easy decision in relation to a better investment, but they both yield 2.90 percent. Once again, they’re both winners. Dr. Pepper yields 3.60 percent.

	1 Month	Year-To-Date	1 Year	3 Year
PEP	4.12%	10.30%	22.79%	32.45%
KO	3.78%	6.07%	14.86%	59.16%
DPS	-3.06%	-2.23%	16.10%	48.56%

At $75.48, Pepsi is currently trading above all its averages.

50-Day SMA	71.68
100-Day SMA	70.69
200-Day SMA	70.50

E = Earnings Have Been Steady

Earnings had been improving on annual basis for several years before a slight setback in 2012. The same can be said for revenue. In a macro sense, both the top and bottom lines have been heading in that direction.

	2008	2009	2010	2011	2012
Revenue ($)in billions	43.25	43.23	57.84	66.50	65.49
Diluted EPS ($)	3.21	3.77	3.91	4.03	3.92

When we look at the last quarter on a year-over-year basis, we see a decline in revenue and an improvement in earnings.

	12/2011	3/2011	6/2012	9/2012	12/2012
Revenue ($)in billions	20.16	12.43	16.46	16.65	19.95
Diluted EPS ($)	0.90	0.71	0.94	1.21	1.06

Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

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