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Microsoft Excel LibreOffice Calc

PepsiCo Inc. (PEP)


Present Value of Free Cash Flow to Equity (FCFE)

Difficulty: Intermediate

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company’s asset base.


Intrinsic Stock Value (Valuation Summary)

PepsiCo Inc., free cash flow to equity (FCFE) forecast

Stock valuation by this method is not possible because prior year FCFE is less than zero.

US$ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at hidden
01 FCFE0 hidden
1 FCFE1 hidden = hidden × (1 + hidden) hidden
2 FCFE2 hidden = hidden × (1 + hidden) hidden
3 FCFE3 hidden = hidden × (1 + hidden) hidden
4 FCFE4 hidden = hidden × (1 + hidden) hidden
5 FCFE5 hidden = hidden × (1 + hidden) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden) ÷ (hiddenhidden) hidden
Intrinsic value of PepsiCo Inc.’s common stock hidden
Intrinsic value of PepsiCo Inc.’s common stock (per share) $hidden
Current share price $hidden

Based on: 10-K (filing date: 2019-02-15).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden
Expected rate of return on market portfolio2 E(RM) hidden
Systematic risk (β) of PepsiCo Inc.’s common stock βPEP hidden
Required rate of return on PepsiCo Inc.’s common stock3 rPEP hidden

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

2 See Details »

3 rPEP = RF + βPEP [E(RM) – RF]
= hidden + hidden [hiddenhidden]
= hidden


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

PepsiCo Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Selected Financial Data (US$ in millions)
Cash dividends declared, common hidden hidden hidden hidden hidden
Cash dividends declared, preferred hidden hidden hidden hidden hidden
Net income attributable to PepsiCo hidden hidden hidden hidden hidden
Net revenue hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Total PepsiCo shareholders’ equity hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden
Profit margin2 hidden hidden hidden hidden hidden
Asset turnover3 hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden
Asset turnover hidden
Financial leverage hidden
Growth rate of FCFE (g)5 hidden

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Retention rate = (Net income attributable to PepsiCo – Cash dividends declared, common – Cash dividends declared, preferred) ÷ (Net income attributable to PepsiCo – Cash dividends declared, preferred)
= (hiddenhiddenhidden) ÷ (hiddenhidden) = hidden

2 Profit margin = 100 × (Net income attributable to PepsiCo – Cash dividends declared, preferred) ÷ Net revenue
= 100 × (hiddenhidden) ÷ hidden = hidden

3 Asset turnover = Net revenue ÷ Total assets
= hidden ÷ hidden = hidden

4 Financial leverage = Total assets ÷ Total PepsiCo shareholders’ equity
= hidden ÷ hidden = hidden

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= hidden × hidden × hidden × hidden = hidden


FCFE growth rate (g) forecast

PepsiCo Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden
2 g2 hidden
3 g3 hidden
4 g4 hidden
5 and thereafter g5 hidden

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (2 – 1) ÷ (5 – 1) = hidden

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (3 – 1) ÷ (5 – 1) = hidden

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= hidden + (hiddenhidden) × (4 – 1) ÷ (5 – 1) = hidden