Stock Analysis on Net
Stock Analysis on Net

PepsiCo Inc. (NASDAQ:PEP)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

PepsiCo Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.55%
01 FCFF0 9,616
1 FCFF1 9,908 = 9,616 × (1 + 3.04%) 9,128
2 FCFF2 10,239 = 9,908 × (1 + 3.34%) 8,691
3 FCFF3 10,612 = 10,239 × (1 + 3.64%) 8,298
4 FCFF4 11,030 = 10,612 × (1 + 3.94%) 7,945
5 FCFF5 11,497 = 11,030 × (1 + 4.23%) 7,630
5 Terminal value (TV5) 277,978 = 11,497 × (1 + 4.23%) ÷ (8.55% – 4.23%) 184,476
Intrinsic value of PepsiCo Inc. capital 226,168
Less: Debt obligations (fair value) 46,000
Intrinsic value of PepsiCo Inc. common stock 180,168
 
Intrinsic value of PepsiCo Inc. common stock (per share) $132.00
Current share price $136.64

Based on: 10-K (reporting date: 2025-12-27).

1 See details »

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.

Weighted Average Cost of Capital (WACC)

PepsiCo Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 186,499 0.80 9.98%
Debt obligations (fair value) 46,000 0.20 2.74% = 3.39% × (1 – 19.22%)

Based on: 10-K (reporting date: 2025-12-27).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,364,891,558 × $136.64
= $186,498,782,485.12

   Debt obligations (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (19.00% + 19.40% + 19.80% + 16.10% + 21.80%) ÷ 5
= 19.22%

WACC = 8.55%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

PepsiCo Inc., PRAT model

Microsoft Excel
Average Dec 27, 2025 Dec 28, 2024 Dec 30, 2023 Dec 31, 2022 Dec 25, 2021
Selected Financial Data (US$ in millions)
Interest expense 1,840 1,606 1,437 1,119 1,988
Net income attributable to PepsiCo 8,240 9,578 9,074 8,910 7,618
 
Effective income tax rate (EITR)1 19.00% 19.40% 19.80% 16.10% 21.80%
 
Interest expense, after tax2 1,490 1,294 1,152 939 1,555
Add: Cash dividends declared 7,718 7,347 6,839 6,275 5,896
Interest expense (after tax) and dividends 9,208 8,641 7,991 7,214 7,451
 
EBIT(1 – EITR)3 9,730 10,872 10,226 9,849 9,173
 
Short-term debt obligations 6,861 7,082 6,510 3,414 4,308
Long-term debt obligations, excluding current maturities 42,321 37,224 37,595 35,657 36,026
Total PepsiCo common shareholders’ equity 20,406 18,041 18,503 17,149 16,043
Total capital 69,588 62,347 62,608 56,220 56,377
Financial Ratios
Retention rate (RR)4 0.05 0.21 0.22 0.27 0.19
Return on invested capital (ROIC)5 13.98% 17.44% 16.33% 17.52% 16.27%
Averages
RR 0.19
ROIC 16.31%
 
FCFF growth rate (g)6 3.04%

Based on: 10-K (reporting date: 2025-12-27), 10-K (reporting date: 2024-12-28), 10-K (reporting date: 2023-12-30), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-25).

1 See details »

2025 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,840 × (1 – 19.00%)
= 1,490

3 EBIT(1 – EITR) = Net income attributable to PepsiCo + Interest expense, after tax
= 8,240 + 1,490
= 9,730

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [9,730 – 9,208] ÷ 9,730
= 0.05

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 9,730 ÷ 69,588
= 13.98%

6 g = RR × ROIC
= 0.19 × 16.31%
= 3.04%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (232,499 × 8.55% – 9,616) ÷ (232,499 + 9,616)
= 4.23%

where:

Total capital, fair value0 = current fair value of PepsiCo Inc. debt and equity (US$ in millions)
FCFF0 = the last year PepsiCo Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of PepsiCo Inc. capital

FCFF growth rate (g) forecast

PepsiCo Inc., H-model

Microsoft Excel
Year Value gt
1 g1 3.04%
2 g2 3.34%
3 g3 3.64%
4 g4 3.94%
5 and thereafter g5 4.23%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 3.04% + (4.23% – 3.04%) × (2 – 1) ÷ (5 – 1)
= 3.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.04% + (4.23% – 3.04%) × (3 – 1) ÷ (5 – 1)
= 3.64%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.04% + (4.23% – 3.04%) × (4 – 1) ÷ (5 – 1)
= 3.94%