PepsiCo Inc (PEP)

Conclusion

PepsiCo makes and sells beverages and convenient foods, including snacks, cereals, dairy products and drinks, across many markets worldwide. Its shares closed at 141.88 USD on 2026-11-09, giving a market capitalisation of 193.35 billion USD.

The verdict is fair. The shares trade below their own ten-year medians on every multiple: P/E of 17.73 against a median of 26.64, EV/EBITDA of 12.15 against 16.95, and price to free cash flow of 18.46 against 29.20. The DCF gives 130.93 USD per share at a discount rate of 8.87%. The fair value band runs from 137.66 to 206.50 USD with a midpoint of 172.08 USD, a margin of safety of 21.3% at the current price. The reverse DCF implies growth of 4.75% a year, while revenue grew 5.94% a year over five years and free cash flow per share grew 4.07%.

The strongest numbers are ROIC of 19.06% against a WACC of 7.83%, interest coverage of 13.4, and free cash flow conversion of 96% over the last twelve months. The weakest are the three-year EPS compound growth of -2.24%, a current ratio of 0.94, and net debt to EBITDA of 2.11. Estimate revisions also lean negative, with 19 downward revisions in the last 30 days for the current year and none upward.

Financial health

Financial strength is green, held up by interest coverage of 13.4 and an Altman Z-score of 3.53, while net debt to EBITDA of 2.11 and a current ratio of 0.94 are assessed neutral. The Altman Z-score sits in the safe zone, and PepsiCo is a manufacturer, so the model fits its business. The quick ratio is 0.72 and debt to equity is 2.33, which is high but serviced comfortably by operating earnings. Insolvency risk: low, about 1.4% by the estimate of the Ohlson model over one to two years. Debt has shrunk over five years, with debt growth running at -3.7% a year against revenue, which supports the balance sheet despite the leverage.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 96% over the last twelve months and a negative accrual ratio of -3.7%, which means cash earnings exceed reported earnings. Over five years, conversion averaged 81.5%, rated neutral. Stock-based compensation is small at 0.3% of revenue, and the share count fell at a compound rate of 0.3% a year over five years, reflecting buybacks. The Piotroski score is 5 out of 9, and the Beneish M-score of -2.55 is in the unlikely range for earnings manipulation. The company beat estimates in seven of the last eight quarters, with an average surprise of 1.6%. However, the current-year estimate fell 1.6% over 90 days and the next-year estimate fell 3.8%.

Profitability

Profitability is green, with operating margin of 15.3% against a ten-year median of 14.2% and net margin of 11.1% against 10.1%. Gross margin of 54.2% is slightly below its median of 54.6%. ROIC of 19.06% against a WACC of 7.83% creates value, and its five-year median of 18.61% shows the return is stable. ROE of 48.9% looks high, but the DuPont split explains much of it: net margin of 8.77%, asset turnover of 0.87 and an equity multiplier of 5.26 mean leverage does much of the work. The return on invested capital is the more reliable measure here.

Growth

Growth is yellow. Revenue compound growth is 2.8% over three years, 5.9% over five years and 4.1% over ten years. EPS fell at 2.2% a year over three years but grew 3.3% over five years and 5.0% over ten. Free cash flow per share grew 11.4% over three years, 4.1% over five years and only 0.6% over ten years. Revenue rose in nine of the last ten years, which is a consistent record. The next-year EPS growth estimate of 2.6% signals a slowdown from the five-year pace.

Valuation

Valuation is yellow, with the fair value band signalling upside while the reverse DCF and multiples point to modest expectations. Current multiples sit below their ten-year medians: P/E of 17.73 against 26.64 (a premium of -33.5%), EV/EBITDA of 12.15 against 16.95 (-28.3%), and P/B of 8.67 against 13.86 (-37.4%). The DCF gives 130.93 USD per share at a discount rate of 8.87%, with about 56% of value in the terminal value. The fair value from historical multiples is 213.23 USD. The fair value band runs from 137.66 to 206.50 USD, with a midpoint of 172.08 USD, a margin of safety of 21.3%. This is an estimate built on fixed assumptions, not a price target. The dividend yield is 4.08% and free cash flow pays out 75.3% of the dividend.

Risks

The main risk is weaker earnings momentum: the three-year EPS decline of -2.2% and negative estimate revisions for both the current and next year would weigh on the valuation if they persist. A current ratio of 0.94 leaves little short-term liquidity cushion, and net debt of 2.11 times EBITDA would absorb more pressure if earnings fell. Free cash flow conversion averaged only 81.5% over five years, so a dip in cash generation would reduce the dividend coverage. The DCF depends heavily on the terminal value, which accounts for about 56% of it. The analysis lacks a debt maturity schedule and revenue by segment, so refinancing timing and the source of growth cannot be checked.