PepsiCo (PEP)

Total return at 5 years: 11.7%/year = 6.9% appreciation + 4.7% dividend. The target price ($177) is ex-dividend; the $34 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $220 · Multiples $172) exceeds the market price ($127).

Today — fairly valued: at $127 trades ~26.4% below its value discounted to today (~$172); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($177) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$111.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($127) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.1%/year) than we project (4.8%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$7.5 bn of owner earnings in year 5 (vs ~$13.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta atribuible (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Diversified consumer staples company (beverages + convenient foods), more capital-intensive than a pure concentrate business: valued on P/E over net income attributable, which gives the equity value directly, with no EV→equity bridge. Rolling grid: the base year is the actual TTM ended Sep 5, 2026 (revenue $98.2bn, XBRL), with raw operating margin (~15.3%) and net margin (~11.1%). Year 0 includes items that do not repeat: net credits from acquisitions and divestitures, commodity mark-to-market gains and tariff refunds (4 points of the 3Q core operating profit growth), so year 1's net margin (~11.0%) sits below year 0 and that level is not extrapolated. The starting rate (+3.5%) breaks down the TTM's +6.4% into what is actual growth: the 3Q release separates organic +3.1% (+2.7% year to date), currency translation +0.7 points (+2.0 year to date) and net acquisitions +1.7 points (+2.0 year to date). FY2026 guidance is organic ~+3%, currency ~+1.5 points, net acquisitions ~+1.5 points (net revenue ~+6%), core EPS +2.5% to +3.5% (+1% to +2% at constant currency) and a core effective tax rate of ~21%. Year 1 (Sep 2026 to Aug 2027) takes guided organic growth (~3%) plus a residual inorganic contribution from 2025 acquisitions (~0.5 points) that runs out at the close of 2026; currency is a separate swing and is not baked in. Year 1 net income grows ~2%, within core EPS guidance, without crediting in advance a volume recovery in North America: the path rests on price/mix and productivity. It decelerates to +3.0% by year 5 (the floor of the consumer staples band, consistent with structurally pressured volume). The terminal multiple (18×) re-rates only slightly from today's multiple — it is not expansion, but the normalization of a multiple compressed by GAAP noise. Cash is not accumulated: the dividend (54th consecutive increase) plus the buyback (deliberately small, ~$1bn/year) already return ~100% of today's actual FCF.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $177 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $127, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $177 in 5 years plus $34 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $172. Against the current market price ($127), the margin of safety is 26.4% (trades below the maximum → there is margin) and the total return at that price would be 11.7% annually.

• Multiple vs quality. P/E 16×, compressed by the GAAP noise.
• Reverse DCF. The cross-check: comparing today's price-implied growth against the base case's ~5.4%/year net income growth.
• Margin of safety. Base case total return runs around the 10% threshold (appreciation plus a growing ~4.4% dividend).

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (111%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds cost of capital. ROIC ~19% vs the 10% hurdle → solid value creation, although more capital-intensive than a pure concentrate business.
• Margin and stability. GAAP operating margin fell ~180bp in FY2025 (12.2% vs 14.0%), but that decline is dominated by non-recurring impairment and restructuring charges; the core margin (ex-charges) compressed only ~12bp (15.88% vs 16.00%), with tariffs and input costs a much smaller pressure within that figure.
• Cash quality. TTM FCF ~$10,471M ≈ net income; FY2025's low reported FCF came from non-recurring charges, not from structural accruals.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

PepsiCo's engine is volume × price/mix by category and geography. Consolidated organic volume fell −2% in 2025 (PFNA −2%, PBNA −3%, partially offset by LatAm Foods +1% and Asia Pacific Foods +4%), while effective price/mix rose +4% — almost all reported growth came from price. PBNA is the largest beverage segment; EMEA was the most dynamic segment of the year (though with weak organic volume); Asia Pacific Foods grows through volume. The new structural risk is GLP-1 and AI purchasing agents affecting sugary beverage and snack consumption.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (5-sep-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. FY2025's reported +2% is nearly all price/mix; organic volume is −2%, negative.
• Growth engine. Price/mix offsets volume that has already declined; depends on continuing to raise price with the consumer under pressure.
• Deceleration and cycle. The TTM (+6.4%) looks strong because of net acquisitions and currency translation — organic growth is ~+3% and the base normalizes to low-to-mid single digits.

• Relevant in 10 years (recurrence). Daily, repeated brand consumption across two categories (snacks + beverages) — will still be sold in 10 years.
• Pricing power. Price/mix (+4%) offset negative volume (−2%) in 2025 — pricing power is present but with volume already eroding, unlike a frictionless pricing power case.
• Moat and its direction. Narrow, stable brand + distribution moat, pressured by GLP-1, AI purchasing agents, sugar taxes and retail private label; the company responds by renewing the portfolio (poppi, Siete, Celsius) rather than only defending it.
• Capital cycle. Mature sector; the brand/distribution moat blocks direct capital entry, but private-label substitution is an indirect form of competition.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 111% of ROIC
• ✓Value creation (ROIC − 10% bar)+9pp
• ✓Malinvestment test (capex vs incremental ROIC)Productive investment (1.1x)
• !Float / working capitalConsumes cash $0.3 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Gross debt ~$49,182M at FY2025 close, 52.8% maturing between 2031 and 2060 and only ~11% at variable rate; two revolving credit facilities of $5,000M each with no balance drawn. The company depends on maintaining Tier 1 access to the commercial paper market — a rating downgrade would raise its cost of financing.
• Coverage and cash. TTM FCF ~$10,471M; capex ~4.2% of revenue, stable. Operating leases with a present value of $3,846M (7-year average, 5% discount) plus ~$900M of future commitments not yet commenced. A deliberately small buyback does not compromise liquidity.
• FY2025 non-recurring charges. ~$2,910M of impairment and restructuring charges already recognized and outside the TTM; the productivity plan keeps incurring charges through 2030 (~$2,540M still pending). SodaStream goodwill has thin coverage (fair value barely above carrying value at FY2025 close) and there are ~$2,400M of reserves for unrecognized tax benefits (a KPMG critical audit matter); the 10-K does not disclose specific material litigation.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Low: the 21 directors and executives together own <1% (2026 DEF 14A) — typical professional mega-cap management; alignment comes from compensation and the dividend, not ownership.
• Capital allocation. The dividend, growing in each of the last three fiscal years, is the priority; buyback deliberately small and stable. In 2025 management allocated $3,150M in cash to poppi and Siete and exchanged Rockstar for Celsius preferred stock — active portfolio curation, not just defense of the existing business.
• Integrity / normalization. The 10-K transparently discloses the FY2025 impairment and restructuring charges and their magnitude by segment, without hiding them in the GAAP figures.

• A clear case of motivated sellers: GAAP FY2025 was depressed by $1,946M of impairment and other charges (which the 10-K does not break out by Rockstar versus other components, split PBNA $1,523M, IB Franchise $73M, EMEA $270M and Be & Cheery $80M in Asia Pacific Foods) plus $964M of restructuring, which drove reported operating income down (−11%) without touching the business's real earning power.
• The commercial priorities plan announced in 2025 for North America remains under execution, together with the 2019 productivity plan (running through 2030, with ~$2,540M of charges still to be incurred) — the market penalizes the uncertainty while both plans mature.
• The stock is weighed down by the sector-wide GLP-1 narrative: GAAP operating margin fell ~180 basis points in 2025, but that decline is dominated by non-recurring impairment and restructuring charges — the core margin (ex-charges) compressed only ~12 basis points, with tariffs and input costs a much smaller pressure within that figure.

There are identifiable missing buyers and motivated sellers: GAAP earnings understate real earning power, and the price already punishes the restructuring noise and the GLP-1 narrative more than the core margin suggests. The second-quarter earnings release (8-K, July 9, 2026) affirmed fiscal 2026 guidance of organic growth between 2% and 4%, consistent with the current base-case path, which supports the reading that the discount is the market's and not a business revision. Unlike a low multiple that only looks cheap, here there is a concrete source of discount — though the structurally pressured volume calls for vigilance.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +2%/year (+10% total): the margin of safety protects the downside. The bull (+18%/year, +128% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• GLP-1 and AI purchasing agents (volume). The structural disconfirmer cited first in the 10-K: obesity medications reduce consumption of sugary beverages and snacks, and the filing adds as a new factor the use of AI purchasing agents that may not choose PepsiCo brands.
• Sugar taxes. Mexico nearly doubled its sugary beverage tax effective Jan-2026; Texas requires warning labels starting 2027.
• North America recovery execution. The 2025 priorities plan remains in progress; if delayed, volume and the multiple stay pressured.
• Private label and retail landscape. Hard discount chains and private label are structurally reducing shelf space.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 19% above the 10% bar, but the margin is limited (+26%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 3.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 9% (EBIT/EV) + ROIC 19% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -4%/yr, bull-scenario ceiling +14%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (5%) — the story squares with the numbers.