Comparing Pepsi Inc To Its Competitors Finance Essay

Introduction: –

This study has been prepared sing the investing in the portions of our chosen company which is Pepsi Inc. In this study we will look at Pepsi Inc in inside informations and compare it with the other rivals in the industry with the aid of swot analysis and a rating of Pepsi Inc portions will be carried out utilizing Gordon Growth Model and other theoretical account of our pick in the terminal we will look at the bonds issued by Pepsi Inc and will look into their definition and besides look at their monetary value utilizing the methods available.

Pepsi Inc: –

Pepsi Inc is the largest maker of Pepsi cola a drink which needs no debut and which is celebrated in many states. Besides Pepsi the company offers other trade names to its clients which include: –

Friend.

Tropicana

Gatorade.

Frito Lay.

The company has established its trade names in about every state in the universe and still turning.

The Rivals: –

Since Pepsi has diversify its concern operations from soft drink industry to many other industry it has to confront competition from different companies the chief rivals of Pepsi are: –

Coca Cola: –

Coke is major competition for Pepsi in American market and it control more market portion than Pepsi and like Pepsi Coke has besides diversify to different industries where Pepsi is so the competition is in other industries now excessively.

Dr Pepper: –

Dr Peppers in comparative new in the industry but viing with Pepsi in European markets aiming more adolescent audience who enjoys the alone gustatory sensation of Dr Peppers although Pepsi did pull off to acquire back some its market portion from Dr Peppers with debut to its new package drink mountain dew which was design for adolescents.

Cuddle: –

Nestle is giving competition to Pepsi in the mineral H2O industry and besides in the nutrient industry with Pepsi different drinks and nutrient points are in direct competition with Pepsi.

Pepsi and Competitors Strengths and Weakness Analysis: –

Strengths: –

Pepsi

Coca Cola

Dr Pepper

Nestle

Has strong background and client base

merely like Pepsi Coke has been celebrated among its users

Holds a strong market place

Globally Recognized nutrient maker.

Good gross revenues and profitable figures

Have strong trade name trueness which enables the company to turn more in the hereafter

Strong gross growing and economic of graduated table

Strong internal growing and accent on invention internally

Patron of major athleticss events and major athleticss squad in the universe

Coke has established itself in the organic nutrient market where it has no competition.

Has established a solid portfolio of trade name and go a major competition for other companies in the group.

Largest consumer merchandises organisation that operates globally.

Pepsi has broader scope of merchandises for its clients

With the launch of its organic drinks the trade name loyal clients of coke who like to imbibe healthy drinks will take coke merchandises

Lack of capital restraints ( handiness of big free hard currency flow )

It besides sells professional trade names to different clients such as colleges, hotels, eating houses etc

Failings: –

Pepsi

Coke

Dr Pepper

Nestle

Pepsi is still far from Coca Cola when it comes to the trade name images and fiscal public presentations.

Coke is new to the organic market and will necessitate clip to set itself into the organic market

Peoples are acquiring wellness witting which is a failing for Dr Pepper as Pepsi has grown into that industry already

The industry has grown to 8.9 % after 2008 but Nestle is still happening it hard to turn into the organic industry.

Confronting strong competition from Nestle in mineral H2O industry

Pepsi has sponsor many featuring events and captured the market of athleticss fans where coke has non done anything sing that.

Ongoing recession and people still loyal to Coke and Pepsi

Storage and repositing jobs

Share Valuation Using Gordon Growth Model: –

The Gordon growing theoretical account besides known as dividend growing theoretical account calculate the value of portions by looking into the growing in the dividend and the expected future growing of the company. It estimate that the growing of the company will be changeless over the old ages.

Gordon Growth Model Formula: –

Po = Do ( 1+g ) / Ke – g

Where

Po = Market value of portions

Make = Current dividend paid by the company

g = Growth in dividends

Ke = Expected return by stockholders

Evaluation of Pepsi Inc Shares for 1st August 2010.

First we need to happen out the growing rate of Pepsi ‘s dividend if we take the latest dividend of the one-fourth it is 0.48 and comparison is with the dividend of 2005 which was 0.26 so the growing rate can be calculated as

( 1+g ) ^20 = a”?

g = 20^ -1

g = 0.031 or 3.1 % is the rate of growing in the portions of Pepsi dividend

Now we calculate the Ke of Pepsi portions

Ke = Do ( 1+g ) / Po +g

= 0.48 ( 1.031 ) / 64.91 + 0.031

= 3.86 %

So now we can cipher the portion monetary value of Pepsi on 1st August 2010 utilizing the equation

Po = 0.48 ( 1.031 ) / 0.0386 – 0.031 )

0.495 / 0.0076

65.13 will be the portion monetary value of Pepsi Inc on 1st August 2010.

Evaluation of Pepsi Inc Shares for 1st August 2007.

Same like above we need to happen out the growing rate of Pepsi ‘s dividend if we take the latest dividend of the one-fourth it is 0.375 and comparison is with the dividend of 2002 which was 0.15 so the growing rate can be calculated as

( 1+g ) ^20 = a”?

g = 20^ -1

g = 0.047 % is the rate of growing in the portions of Pepsi dividend

Now we calculate the Ke of Pepsi portions

Ke = Do ( 1+g ) / Po +g

= 0.375 ( 1.047 ) / 65.02 + 0.047

= 0.053 %

So now we can cipher the portion monetary value of Pepsi on 1st August 2007 utilizing the equation

Po = 0.375 ( 1.047 ) / 0.053 – 0.047 )

0.393 / 0.006

65.5 will be the portion monetary value of Pepsi Inc on 1st August.2007

Evaluation of Pepsi Inc Shares for 1st August 2000.

The growing rate of Pepsi ‘s dividend if we take the latest dividend of the one-fourth it is 0.14 and comparison is with the dividend of 1995 which was 0.10 so the growing rate can be calculated as

( 1+g ) ^20 = a”?

g = 20^ -1

g = 0.017 % is the rate of growing in the portions of Pepsi dividend

Now we calculate the Ke of Pepsi portions

Ke = Do ( 1+g ) / Po +g

= 0.14 ( 1.017 ) / 45.81 + 0.017

= 0.02 %

So now we can cipher the portion monetary value of Pepsi on 1st August 2000 utilizing the equation

Po = 0.14 ( 1.031 ) / 0.02 – 0.017 )

0.142 / 0.003

47.33 will be the portion monetary value of Pepsi Inc on 1st August 2000

.

Comparison Of Share Prices and Differences: –

1st August

Actual

Model

2010

65.58

65.13

2007

66.47

65.5

2000

45.06

47.33

The difference in monetary value can be justify with the face that Gordon growing theoretical account work on the footing of changeless growing in portions dividend where as in existent life that is non the instance beside that the portions float on stock market harmonizing to their volumes and if we compare the scope between portions opening and shuting monetary values we can see that the portions of Pepsi Inc did in fact operated under the scope of the monetary value predict by the theoretical account.

Other Method Of Valuation: –

Besides the Gordon growing theoretical account there are other methods of ciphering the portion monetary value of a company one of them is discounted hard currency flow method

Discounted Cash flow Method: –

In this method of rating a company is valued based upon it ‘s prevent value of future hard currency flows utilizing estimations about the company growing and how it will execute in the hereafter.

Discounted Cash Flows Vs Gordon Growth Model: –

DCF

GGM

1

DCF works on foretelling future hard currency flows utilizing historical informations from past income statement and balance sheet

GGM works on analyzing the growing in dividends merely

2

It takes into history the hazard factor

Hazards non see in the growing

3

Growth is calculated based on company public presentation and industry analysis

This theoretical account assumed that the growing rate will be changeless

4

Give a realistic rating based on company endeavor value

Merely considers dividends given by the company in the yesteryear

DCF Strengths: –

It produces closed realistic ratings.

Calculations are based on the free hard currency flows.

Gives a world cheque sing the stock monetary value of a company by working backwards and happening out is the current monetary value of the stock is justify.

DCF Weaknesses: –

Merely every bit good as the inputs in the theoretical account if the information entered into the theoretical account is non accurate than the consequence green goods will non be dependable.

Required higher degree of expertness when foretelling future hard currency flows and required that all information should be available.

Plants on the premise growing rate and working capital if any of those deliberate point autumn below even 1 % it will impact the anticipation by a bog border.

More suited for long term puting intents it based on the computation for the hereafter which a company may take clip to achieved.

Evaluation Of Pepsi Shares With DCF: –

All the computations used and all the premises sing the portion monetary values of Pepsi and the informations are attached in the appendixes in the terminal of this study.

For the twelvemonth 2007 and 2000 portion monetary values valuations the premise are the same as in for 2010 sing industry and Pepsi beta and other informations as happening informations this old was hard.

Pepsi ‘s Share Price On 1st August 2010: –

The portion monetary value predicted for this period is $ 64.12 ( Appendix 1 )

Pepsi ‘s Share Price On 1st August 2007: –

The portion monetary value predicted for this period is $ 54.5 ( Appendix 2 )

Pepsi ‘s Share Price On 1st August 2000: –

The portion monetary value predicted for this period is $ 42.11 ( Appendix 3 )

Comparison Of Share Prices And Reasons: –

The portion monetary values calculated by Gordon Growth Model and Discounted Cash Flow theoretical account are different on the footing that the growing theoretical account calculate monetary value base on the evidences that the Gordon Growth Model estimate the growing at a changeless rate in the dividends while the monetary value based on the discounted hard currency flow theoretical account has been calculated based on the estimation endeavor value of the company and its past public presentations.

The theoretical account of discounted hard currency flows works with the estimation endeavor of the company which in our instance is Pepsi Inc and value the company based on its equity and debt value at the minute and compare it with the industry or chiefly with the top rivals, it besides take into history the hazards associated with the company and what should be the expected return on the investing.

The rate of return used in Gordon Growth Model is based on mean dividends the company has given in the past and expected them to be changeless over the future clip while in the discounted hard currency flow model the rate of return has been calculated integrating the hazard associate with the company and analysis the rivals.

The difference in portion monetary value could besides be the consequence of that the estimations use for the computation of 2007 and 2009 portion monetary values were the same as the estimations of 2010 as the historical information regarding hazards and beta about the company can be obtain after some computation but the hazards and beta of the other companies in the industry was clip devouring that is why for the computation of 2007 and 2000 portion monetary value the same estimations of analysis and the same premise about the industry was taken which consequence in difference in monetary values.

Chemical bonds: –

Chemical bonds are debt securities which provide returns on fixed rate.