A Board Member Is Drinking Up More Shares of Pepsico

We can compare Pepsi to The Coca-Cola Company (NYSE:KO), Dr Pepper Snapple Group Inc (NYSE:DPS), Monster Beverage Corp (NASDAQ:MNST), and Mondelez International Inc (NASDAQ:MDLZ) with Mondelez representing a comp for the snacks business. Coca-Cola is priced at only a small premium to Pepsi though of course its brand is generally considered stronger (it also grew both its revenue and earnings in Q4 2012 versus a year earlier). Monster has been the growth story of the beverage business, and at 27 times trailing earnings the market is pricing in more improvement; however, its earnings growth was actually somewhat modest last quarter. Revenue was up, however, so we would need to look deeper before deciding if it is in fact overvalued. Dr. Pepper Snapple is the value play of beverages, with a trailing P/E of 15, though its business has been about flat and it is generally thought of as not including as strong brands as Pepsi. Mondelez, which was created in the breakup of Kraft, is at about the same valuation level as Dr. Pepper Snapple and sell-side analysts are forecasting little growth there.

If Pepsi can continue the earnings growth it experienced last quarter, then it will turn out to have been a good value at the current price. However, considering that the year as a whole was not particularly strong and that revenue growth was well below earnings growth, we doubt that the most recent report represents a new normal for the company. As a result we’d suggest keeping this insider purchase in mind but waiting to hear for good news from Pepsi before considering a purchase.

Disclosure: I own no shares of any stocks mentioned in this article.