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PEP – Market expectations are for Uniform ROA to recover, but management may have concerns about Frito-Lay, energy drinks, and Latin America

April 21, 2021

  • PepsiCo, Inc. (PEP:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 35.2x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about investments in Frito-Lay, the potential of their energy drink innovations, and Latin America’s economic recovery
  • Specifically, management may lack confidence in their ability to maintain large brand market share and they may have concerns about their A&M investments in Frito-Lay. In addition, they may be exaggerating the long-term prospects of Frito-Lay and the potential of their energy drink innovations. Finally, management may have concerns about the sustainability of their performance in Central Europe, the pace of recovery in Latin America, and their share buyback-related capital allocation decisions