REPORT DIFF

PepsiCo, Inc. — what changed

2026-08-10-2 → 2026-08-19 · 197 changed lines · numbers highlighted

1. Business Overview (4 changed lines)

− | Current Price | $139.63 |

+ | Current Price | $140.13 |

− | 12-Month Price Target | $137.87 |

+ | 12-Month Price Target | $137.44 |

3. Financial Analysis (4 changed lines)

− | **Z-Score** | **2.36** | **2.43** | **2.26** |

+ | **Z-Score** | **1.93** | **1.99** | **1.85** |

− **The Z-Score sits in the gray zone, but the model understates a company of this credit quality — read it as a nuance, not an alarm.** PepsiCo's Z-Score eased to 2.26 in FY2025 from 2.43, keeping it inside the "gray" band for all three years shown. Two structural features of the business pull the score down mechanically rather than for reasons of genuine distress. The working-capital ratio (X1) is

+ **The Z-Score sits in the gray zone, but the model understates a company of this credit quality — read it as a nuance, not an alarm.** PepsiCo's Z-Score eased to 1.85 in FY2025 from 1.99, keeping it inside the "gray" band for all three years shown. Two structural features of the business pull the score down mechanically rather than for reasons of genuine distress. The working-capital ratio (X1) is

4. Valuation Methodology (66 changed lines)

− | Risk-Free Rate (10Y UST) | 4.70% | US Treasury daily yield curve |

+ | Risk-Free Rate (10Y UST) | 4.72% | US Treasury daily yield curve |

− | **Cost of Equity (Ke)** | **7.59%** | CAPM: Rf + β × ERP + company premium |

+ | **Cost of Equity (Ke)** | **7.62%** | CAPM: Rf + β × ERP + company premium |

− The cost of equity of 7.59% is low in absolute terms — unsurprisingly, because two of its three moving parts pull downward for a defensive staples name: a below-market beta and a modest implied equity risk premium of 4.23%. The dominant driver of Ke at this capital structure is the risk-free rate of 4.70%, which alone accounts for the majority of the required return; the systematic-risk contributi

+ The cost of equity of 7.62% is low in absolute terms — unsurprisingly, because two of its three moving parts pull downward for a defensive staples name: a below-market beta and a modest implied equity risk premium of 4.23%. The dominant driver of Ke at this capital structure is the risk-free rate of 4.72%, which alone accounts for the majority of the required return; the systematic-risk contributi

− **Beta — why the raw regression figure was rejected.** The beta used here, 0.57, is not PepsiCo's own raw regression beta. Estimated from five years of monthly price history against the market, that raw figure is 0.36 — an implausibly low reading that would imply PepsiCo's equity carries barely a third of the market's systematic risk. Applied naively in CAPM, a beta of 0.36 collapses the cost of e

+ **Beta — why the raw regression figure was rejected.** The beta used here, 0.57, is not PepsiCo's own raw regression beta. Estimated from five years of monthly price history against the market, that raw figure is 0.35 — an implausibly low reading that would imply PepsiCo's equity carries barely a third of the market's systematic risk. Applied naively in CAPM, a beta of 0.35 collapses the cost of e

− The pre-tax cost of debt of 5.30% is a *marginal* rate — an estimate of what PepsiCo would pay to issue new debt today — not the company's reported effective interest rate on its existing stock of borrowings. This is a considered departure from the mechanical "interest expense ÷ average debt" approach, and the reason is specific to PepsiCo. Its effective interest rate sits *below* the 4.70% risk-f

+ The pre-tax cost of debt of 5.30% is a *marginal* rate — an estimate of what PepsiCo would pay to issue new debt today — not the company's reported effective interest rate on its existing stock of borrowings. This is a considered departure from the mechanical "interest expense ÷ average debt" approach, and the reason is specific to PepsiCo. Its effective interest rate sits *below* the 4.72% risk-f

− | **WACC** | **6.99%** |

+ | **WACC** | **7.02%** |

− At 82.7% equity and 17.3% debt on a market-value basis, PepsiCo carries only modest leverage in enterprise terms — the equity market capitalisation dwarfs the debt load even after the FY2025 increase in borrowings flagged in Section 3. The consequence is that the cost of equity, not the cost of debt, overwhelmingly determines the blended rate: with equity weighted above four-fifths of the capital

+ At 82.7% equity and 17.3% debt on a market-value basis, PepsiCo carries only modest leverage in enterprise terms — the equity market capitalisation dwarfs the debt load even after the FY2025 increase in borrowings flagged in Section 3. The consequence is that the cost of equity, not the cost of debt, overwhelmingly determines the blended rate: with equity weighted above four-fifths of the capital

− The valuation uses an unlevered discounted-cash-flow model with a five-year explicit projection period followed by a terminal value. The terminal value is computed two independent ways — a perpetuity-growth calculation and an exit EV/EBITDA multiple — and the two are reconciled in 4.2.3, with the perpetuity method selected and the exit multiple retained as a cross-check. Three scenarios — Base, Be

+ The valuation uses an unlevered discounted-cash-flow model with a five-year explicit projection period followed by a terminal value. The terminal value is computed two independent ways — a perpetuity-growth calculation and an exit EV/EBITDA multiple — and the two are reconciled in 4.2.3, with the perpetuity method selected and the exit multiple retained as a cross-check. Three scenarios — Base, Be

− | WACC | 6.99% | 6.99% | 6.99% |

+ | WACC | 7.02% | 7.02% | 7.02% |

− *Note: Bear and Bull apply the standard adjustments above (per the valuation-agent methodology) to every projection year. The resulting fair values appear in Section 6.2 ($100.42 / $188.97).*

+ *Note: Bear and Bull apply the standard adjustments above (per the valuation-agent methodology) to every projection year. The resulting fair values appear in Section 6.2 ($99.53 / $187.10).*

− | PV of UFCF ($M) | — | $8,511.9M | $8,456.7M | $8,262.7M | $8,049.1M | $7,758.0M |

+ | PV of UFCF ($M) | — | $8,509.8M | $8,452.5M | $8,256.6M | $8,041.2M | $7,748.4M |

− Unlevered free cash flow builds steadily from $9,107.0M in Year 1 to $10,876.2M in Year 5, and the discounted values decline gently across the horizon — from $8,511.9M to $7,758.0M — as the 6.99% discount rate progressively outweighs the fading cash-flow growth. That the present values barely taper is itself a signal of how much value the model pushes into the terminal period, and it sets up the e

+ Unlevered free cash flow builds steadily from $9,107.0M in Year 1 to $10,876.2M in Year 5, and the discounted values decline gently across the horizon — from $8,509.8M to $7,748.4M — as the 7.02% discount rate progressively outweighs the fading cash-flow growth. That the present values barely taper is itself a signal of how much value the model pushes into the terminal period, and it sets up the e

− | Sum of PV of UFCFs ($M) | $41,038.4M |

− | Terminal Value — Perpetuity Growth ($M) | $263,523.6M |

+ | Sum of PV of UFCFs ($M) | $41,008.6M |

+ | Terminal Value — Perpetuity Growth ($M) | $261,901.1M |

− | Selected Terminal Value ($M) | $263,523.6M |

− | PV of Terminal Value ($M) | $187,970.1M |

+ | Selected Terminal Value ($M) | $261,901.1M |

+ | PV of Terminal Value ($M) | $186,583.6M |

− | **Enterprise Value ($M)** | **$229,008.5M** |

+ | **Enterprise Value ($M)** | **$227,592.3M** |

− | **Equity Value ($M)** | **$188,844.5M** |

− | Shares Outstanding (M — current count used in the per-share bridge) | 1,366.6 |

− | **DCF Fair Value / Share (Base)** | **$138.19** |

− | Upside / Downside vs. Current Price | -1.0% |

+ | **Equity Value ($M)** | **$187,428.3M** |

+ | Shares Outstanding (M — current count used in the per-share bridge) | 1,369.0 |

+ | **DCF Fair Value / Share (Base)** | **$136.91** |

+ | Upside / Downside vs. Current Price | -2.3% |

− The terminal value is where the two methods earn their keep. The perpetuity-growth calculation returns $263,523.6M; the exit-multiple calculation, at 13.5x EBITDA, returns $273,672.7M — the two agree to within a fraction of a percent. That is a genuine corroboration rather than a coincidence engineered by back-solving one to the other: an independently chosen exit multiple and an independently cho

+ The terminal value is where the two methods earn their keep. The perpetuity-growth calculation returns $261,901.1M; the exit-multiple calculation, at 13.5x EBITDA, returns $273,672.7M — the two land within roughly five percent of each other. That is a genuine corroboration rather than a coincidence engineered by back-solving one to the other: an independently chosen exit multiple and an independen

− Because roughly four-fifths of enterprise value sits in the terminal value, the price target is highly sensitive to the two inputs that govern it — the discount rate and the terminal growth rate. The grid below isolates the perpetuity-growth terminal leg, varying WACC down the rows and terminal growth across the columns. **The mandatory disclosure required at the valuation checkpoint belongs here

+ Because roughly four-fifths of enterprise value sits in the terminal value, the price target is highly sensitive to the two inputs that govern it — the discount rate and the terminal growth rate. The grid below isolates the perpetuity-growth terminal leg, varying WACC down the rows and terminal growth across the columns. **The mandatory disclosure required at the valuation checkpoint belongs here

− | WACC \ TGR | 1.75% | 2.25% | 2.75% | 3.25% | 3.75% |

− |---|---|---|---|---|---|

− | 5.99% | 144.1 | 163.9 | 189.9 | 225.3 | 276.5 |

− | 6.49% | 125.7 | 141.0 | 160.5 | 186.0 | 220.7 |

− | **6.99%** | 110.8 | 123.0 | **138.0** | 157.2 | 182.1 |

− | 7.49% | 98.4 | 108.3 | 120.3 | 135.1 | 153.9 |

− | 7.99% | 88.1 | 96.3 | 106.0 | 117.7 | 132.3 |

+ | WACC \ TGR | 1.2% | 1.8% | 2.2% | 2.8% | 3.2% | 3.8% | 4.2% |

+ |---|---|---|---|---|---|---|---|

+ | 5.0% | 169.5 | 196.1 | 232.2 | 284.3 | 365.8 | 511.7 | 847.7 |

+ | 5.5% | 146.0 | 166.0 | 192.0 | 227.4 | 278.5 | 358.5 | 501.7 |

+ | 6.0% | 127.5 | 142.9 | 162.5 | 188.0 | 222.8 | 272.9 | 351.4 |

+ | 6.5% | 112.4 | 124.7 | 139.9 | 159.1 | 184.1 | 218.3 | 267.5 |

+ | 7.0% | 100.0 | 110.0 | 122.0 | 136.9 | 155.8 | 180.4 | 213.9 |

+ | 7.5% | 89.5 | 97.8 | 107.6 | 119.4 | 134.0 | 152.5 | 176.7 |

+ | 8.0% | 80.6 | 87.5 | 95.6 | 105.2 | 116.8 | 131.2 | 149.3 |

+ | 8.5% | 73.0 | 78.8 | 85.6 | 93.5 | 102.9 | 114.3 | 128.4 |

+ | 9.0% | 66.3 | 71.3 | 77.0 | 83.6 | 91.4 | 100.7 | 111.9 |

− Because the base case uses the perpetuity method, the bolded central cell of the grid is the reported base case itself — it equals $138.19 at the 6.99% WACC and 2.8% terminal growth intersection; there is no blend to disentangle. Reading the geography of the grid is instructive. With WACC rising down the rows and terminal growth rising across the columns, the richest values sit in the top-right co

+ Because the base case uses the perpetuity method, the bolded central cell of the grid is the reported base case itself — it equals $136.91 at the 7.02% WACC and 2.8% terminal growth intersection; there is no blend to disentangle. Reading the geography of the grid is instructive. With WACC rising down the rows and terminal growth rising across the columns, the richest values sit in the top-right co

5. Peer Benchmarking (8 changed lines)

− **On the return that matters most — ROIC — PepsiCo ranks second only to Coca-Cola, and the peers that screen below it do so for reasons that have nothing to do with operating quality.** PepsiCo's FY2025 ROIC of 16.3% sits a little below Coca-Cola's 17.9%, and that small gap flatters Coca-Cola less than it appears: Coca-Cola's operating income *excludes* roughly two billion dollars of equity income

+ **On the return that matters most — ROIC — PepsiCo ranks second only to Coca-Cola, and the peers that screen below it do so for reasons that have nothing to do with operating quality.** PepsiCo's FY2025 ROIC of 16.3% sits a little below Coca-Cola's 17.9%, and that small gap flatters Coca-Cola less than it appears: Coca-Cola's operating income *excludes* roughly two billion dollars of equity income

− | P/E | 23.3x | 28.5xᵐ | 32.2xᵐ‡ | 19.9xᵐ◊ | 8.4xᵐ¶ |

+ | P/E | 23.4x | 28.5xᵐ | 32.2xᵐ‡ | 19.9xᵐ◊ | 8.4xᵐ¶ |

− **With four peers the discount question is sharper, not simpler — and the honest answer is that PepsiCo is not obviously cheap.** PepsiCo trades at 15.5x EV/EBITDA and 23.3x earnings. Against the two large-cap peers it screens cheaper: Coca-Cola at 27.7x and 28.5x, Mondelez at 20.0x and 32.2x. But against the two we have just added, PepsiCo is *more expensive*: Keurig Dr Pepper trades at 13.5x EV/

+ **With four peers the discount question is sharper, not simpler — and the honest answer is that PepsiCo is not obviously cheap.** PepsiCo trades at 15.5x EV/EBITDA and 23.4x earnings. Against the two large-cap peers it screens cheaper: Coca-Cola at 27.7x and 28.5x, Mondelez at 20.0x and 32.2x. But against the two we have just added, PepsiCo is *more expensive*: Keurig Dr Pepper trades at 13.5x EV/

− **C004/C005 — PepsiCo's own GAAP earnings are depressed, so the P/E comparison is imperfect on the subject side too (informational; affects P/E, net margin, EPS).** PepsiCo's FY2025 GAAP net income and diluted EPS are themselves reduced by the intangible impairment analysed in Section 3, elevating its reported GAAP P/E of 23.3x relative to its underlying earnings power. Both PepsiCo and Mondelez t

+ **C004/C005 — PepsiCo's own GAAP earnings are depressed, so the P/E comparison is imperfect on the subject side too (informational; affects P/E, net margin, EPS).** PepsiCo's FY2025 GAAP net income and diluted EPS are themselves reduced by the intangible impairment analysed in Section 3, elevating its reported GAAP P/E of 23.4x relative to its underlying earnings power. Both PepsiCo and Mondelez t

6. Valuation & Price Target (115 changed lines)

− This section converts the cost of capital and DCF machinery built in Section 4, the relative multiples framed in Section 5, and the earnings-quality findings of Sections 2 and 3 into a single, defensible conclusion. It does not manufacture precision the inputs do not support. The central figure is a range with a clearly identified centre, the recommendation is a judgment rather than an arithmetic

+ This section converts the cost of capital and DCF machinery of Section 4, the relative multiples of Section 5, and the earnings-quality findings of Sections 2 and 3 into a single, defensible conclusion. It does not manufacture precision the inputs do not support. The central figure is a range with a clearly identified centre, the recommendation is a judgment rather than an arithmetic output, and t

− ## 6.1 Valuation Framework

+ ## 6.1 Valuation Framework & Cost of Capital

+ **The discount rate — and the one judgment that drives it.** Three of the four methods depend on the discount rate, and the DCF depends on it almost entirely. The WACC is rebuilt in full in Section 4; it is recapped here because it is the single largest swing factor in the target and because one input inside it carries the whole conclusion.

+ | Component | Value |

+ |---|---|

+ | Risk-free rate (10Y UST) | 4.72% |

+ | Equity risk premium | 4.23% |

+ | Beta (Blume-adjusted) | 0.57 |

+ | Company-specific premium | 0.50% |

+ | Size premium | 0.00% |

+ | **Cost of equity (Ke)** | **7.62%** |

+ | After-tax cost of debt | 4.13% |

+ | Equity weight / Debt weight | 82.7% / 17.3% |

+ | **WACC** | **7.02%** |

+ *Source: FL valuation model (Valuation sheet) — see Appendix A.1–A.2.*

+ **Beta — why the measured figure was rejected.** PepsiCo's raw regression beta, estimated from five years of monthly price history, is 0.35 — an implausibly low reading that would imply the equity carries barely a third of the market's systematic risk. Used naively in CAPM, a beta of 0.35 collapses the cost of equity toward, and on the checkpoint build essentially to, PepsiCo's own cost of debt —

+ **The build, in one line.** At 4.72% risk-free plus 0.57 times a 4.23% equity risk premium, plus a 0.50% company-specific premium added outside the beta term for the idiosyncratic exposures Sections 2 and 3 documented (Russia cash under currency controls, demonstrated acquired-brand impairment, shareholder returns exceeding free cash flow), the cost of equity is 7.62%. Blended with a 4.13% after-t

− | Scenario | Fair Value / Share | Upside / Downside vs. Current Price ($139.63) |

+ | Scenario | Fair Value / Share | Upside / Downside vs. Current Price ($140.13) |

− | Bear | $100.42 | Downside — below the current price |

− | Base | $138.19 | -1.0% |

− | Bull | $188.97 | Upside — well above the current price |

+ | Bear | $99.53 | Downside — below the current price |

+ | Base | $136.91 | -2.3% |

+ | Bull | $187.10 | Upside — well above the current price |

− The DCF base case of $138.19 sits -1.0% above the current price of $139.63 — intrinsic value marginally ahead of the market, not a mispricing. The more important read is the bear case. At $100.42, the bear scenario sits below the current price, which is the correct sanity check to run: it means the market is not pricing in the downside, and a buyer at today's level is exposed if the base-case assu

+ The DCF base case of $136.91 sits -2.3% against the current price of $140.13 — intrinsic value fractionally below the market, not a mispricing in either direction. The more instructive read is the bear case. At $99.53, the bear scenario sits well below the current price, which is the correct sanity check to run: the market is not pricing in the downside, and a buyer at today's level is exposed if

− ## 6.3 Multiples-Based Valuation

+ ## 6.3 Relative Valuation — the Normalized Basis, Stated Explicitly

− | P/E | 23.3x | 17.1x | 18.5x | $150.59 |

− | EV/EBITDA | 15.5x | 13.6x | 13.5x | $137.97 |

− | FCF Yield | 4.0% | 4.0% | 4.5% | $124.75 |

+ | P/E | 23.4x | 17.2x | 18.5x | $150.59 |

+ | EV/EBITDA | 15.5x | 13.7x | 13.5x | $137.73 |

+ | FCF Yield | 4.0% | 4.0% | 4.5% | $124.54 |

− *Read this table with the basis in mind, because the two columns are not the same measure. The GAAP column is where the stock trades on FY2025 **as reported** — and FY2025 GAAP earnings are depressed by the intangible impairment, which is what makes the GAAP P/E look optically high. The normalised column is the basis the valuation actually uses: earnings on management's **Core** (non-GAAP) measure

+ **Why the relative legs are run on a normalized basis — and why that is not a cosmetic choice.** FY2025 GAAP earnings and reported EBITDA are both depressed by the same one-off, non-cash event: the Rockstar-led intangible impairment recorded this year, a write-down concentrated in the beverage brands and never expected to recur. The DCF in Section 4 already strips that charge out — it projects nor

− The anchors are drawn from the peer work in Section 5, which concluded that PepsiCo deserves a *moderate* discount to a clean-earnings Coca-Cola and rough parity with a normalised Mondelez — not the yawning discount the raw screen implies. The P/E target of 18.5x is set below Coca-Cola's clean multiple to reflect PepsiCo's structurally lower margin, softer volume trajectory and weaker earnings qua

+ The target multiples themselves are drawn from the peer work in Section 5, which concluded that PepsiCo deserves a *moderate* discount to a clean-earnings Coca-Cola and rough parity with a normalised Mondelez — not the yawning discount the raw screen implies. The P/E target of 18.5x is set on Core earnings below Coca-Cola's clean multiple to reflect PepsiCo's structurally lower margin, softer volu

− | DCF | $100.42 | $138.19 | $188.97 |

+ | DCF | $99.53 | $136.91 | $187.10 |

− | EV/EBITDA Relative | $112.87 | $137.97 | $163.08 |

− | FCF Yield | $108.48 | $124.75 | $146.77 |

− | **Composite Fair Value** | **$112.44** | **$137.87** | **$168.00** |

+ | EV/EBITDA Relative | $112.67 | $137.73 | $162.79 |

+ | FCF Yield | $108.29 | $124.54 | $146.51 |

+ | **Composite Fair Value** | **$112.12** | **$137.44** | **$167.40** |

− *Each scenario's composite is the equal-weighted average of the four methods. The Base case is the central reference; Bear and Bull bound the range.*

+ **Composite Fair Value (Base):** $137.44 | **Current Price:** $140.13 | **Implied Upside / Downside:** -1.9%

− **Composite Fair Value (Base):** $137.87

+ The single most important disclosure in this section is the spread *inside* the base column. The composite base of $137.44 sits a fraction **above** the DCF base of $136.91, because the four legs straddle it. The P/E leg ($150.59) is the most optimistic and sits well above the DCF; the EV/EBITDA leg ($137.73) lands just above it; the FCF-yield leg ($124.54) is materially lower than any of them. In

− *Source: Valuation sheet of the workbook (approved assumptions); peer anchors per Section 5; every figure traceable via lineage.json.*

− **Current Price:** $139.63 | **Implied Upside / Downside:** -1.3%

− The single most important disclosure in this section is the spread *inside* the base column. The composite base of $137.87 sits **below** the DCF base of $138.19, and it does so because two of the four legs pull the average down. The P/E leg ($150.59) is the most optimistic and sits above the DCF; the EV/EBITDA leg ($137.97) is close to the DCF; but the FCF-yield leg ($124.75) is materially lower

− The dispersion across scenarios is wide, and the reader should treat that width as the true message. The composite spans $112.44 in the bear case to $168.00 in the bull case around a $137.87 centre — a range of roughly a third of the share price from floor to ceiling. The dominant driver of that spread is the DCF leg, whose own bear-to-bull span ($100.42 to $188.97) is by far the widest of the fou

+ The dispersion across scenarios is wide, and the reader should treat that width as the true message. The composite spans $112.12 in the bear case to $167.40 in the bull case around a $137.44 centre — a range of roughly a third of the share price from floor to ceiling. The dominant driver of that spread is the DCF leg, whose own bear-to-bull span ($99.53 to $187.10) is by far the widest of the four

− This is the mandatory disclosure, placed where a portfolio manager will not miss it. The terminal value is roughly four-fifths of enterprise value (82% of the base-case total), and the spread between the discount rate and the 2.8% terminal growth rate is only a few hundred basis points. When a large terminal cash flow sits over a small denominator (WACC minus growth), the fair value swings hard on

+ This is the mandatory disclosure, placed where a portfolio manager will not miss it. The terminal value is roughly four-fifths of enterprise value (82% of the base-case total), and the spread between the 7.02% discount rate and the 2.8% terminal growth rate is only a few hundred basis points. When a large terminal cash flow sits over a small denominator (WACC minus growth), the fair value swings h

− The current share price of $139.63 is implied near the centre of the grid — at approximately the base-case WACC (the bolded row) with a terminal growth rate marginally below the 2.8% base column, or equivalently at a slightly higher discount rate holding growth at base. That is a reasonable, even conservative, set of implied assumptions: the market is not pricing above-trend perpetual growth for P

+ The current share price of $140.13 is implied near the centre of the grid — at approximately the base-case WACC (the bolded row) with a terminal growth rate marginally below the 2.8% base column, or equivalently at a slightly higher discount rate holding growth at base. That is a reasonable, even conservative, set of implied assumptions: the market is not pricing above-trend perpetual growth for P

− **WACC × Terminal Growth Rate — DCF Fair Value / Share**

+ **WACC × Terminal Growth Rate — DCF Fair Value / Share (Perpetuity Method)**