PEP – Market expectations are for Uniform ROA to rebound, but management may have concerns about growth, inflation, and margins

• PepsiCo, Inc. (PEP:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 36.7x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about brand growth, inflation, and the margin impact of acquisitions.
  
• Specifically, management may lack confidence in their ability to sustain growth in their small-and-medium-sized brands such as Starbucks and Pure Leaf, expand the away-from-home business in China, and gain market share in the U.S. In addition, they may have concerns about the margin impact of new acquisitions and the sustainability of at home consumption trends. Finally, management may be exaggerating the potential of their customer interaction investments and they may lack confidence in their ability to navigate inflation headwinds.