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PEP - PepsiCo Inc (Stock Report)

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211 views21 pages

PEP - PepsiCo Inc (Stock Report)

PepsiCo stock report

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87yk9mddv7

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Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NASDAQ - ALL MARKETS Page 1 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

Price vs. Fair Value

Last Close: 172.78

200 Fair Value: 170.00
2 Nov 2022 10:32, UTC

150 Over Valued

Under Valued
100

0
Analysis
2018 2019 2020 2021 2022 YTD
0.91 1.03 1.06 1.13 1.06 1.02 Price/Fair Value
-4.88 27.14 11.45 20.00 6.61 -4.36 Total Return %
Morningstar Rating

Total Return % as of 9 Feb 2023. Last Close as of 9 Feb 2023. Fair Value as of 2 Nov 2022 10:32, UTC.
Contents
Analyst Note (10 Feb 2023) Wide-Moat PepsiCo Delivers Stellar Q4, Focuses on Organic
Business Description
Business Strategy & Outlook (2 Nov 2022) Expansion in 2023; Shares Fairly Valued
Bulls Say / Bears Say (2 Nov 2022)
Analyst Note Dan Su, CFA, Senior Equity Analyst, 10 Feb 2023
Economic Moat (2 Nov 2022)
Fair Value and Profit Drivers (2 Nov 2022)
The strong fourth-quarter results from wide-moat PepsiCo reinforced our confidence in the firm’s growth
Risk and Uncertainty (2 Nov 2022) strategies around brand investment, product innovation, and channel expansion. The firm delivered a
Capital Allocation (2 Nov 2022) 15% increase in organic revenue (powered by an 18% snack sale expansion), and 10% growth in
Analyst Notes Archive adjusted EPS, slightly ahead of our 9% and 5% respective estimates. After incorporating the better-than-
Financials
expected results, we plan to raise our $170 fair value estimate by a low-single-digit percentage and
Appendix
view the shares as fairly valued.
Research Methodology for Valuing Companies

Important Disclosure We attributed the strong top line to a sharper focus on branding, research, and channel relations. We
The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of
Conduct Policy, Personal Security Trading Policy (or an equivalent of), and view creative marketing on localized content, coupled with innovation around new ingredients (for
Investment Research Policy. For information regarding conflicts of interest, please
visit: http://global.morningstar.com/equitydisclosures.
example, high-protein chickpeas) and package offerings (bite-size fare in easy-to-pour canisters), as
The primary analyst covering this company does not own its stock.
crucial to driving double-digit volume growth in core brands Doritos, Cheetos, and Lay’s. We’d also

The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk

1
point to Pepsi Zero Sugar volume growth (28%) and accelerating sales for energy drink brands Rockstar
Rating. and Celsius as evidence that thoughtful marketing and consumer-centered innovations are a powerful
combination to fuel sales expansion. While less quantifiable, we’d also call out investments in retailers
and foodservices with data analytics collaboration and cooler placements as contributing to the firm’s
long-term prospects.

On margins, we are impressed by PepsiCo’s ability to fully offset double-digit commodity cost inflation
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 2 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

with pricing, point of sale execution and manufacturing efficiency gains, holding fourth-quarter gross
Sector Industry
margin (52%) flat year over year. Higher investments in advertising and channel partners hurt operating
s Consumer Defensive Beverages - Non-Alcoholic
margins in the quarter (down 240 basis points, to 8.5%), though the full-year margin remained solid at
Business Description
13.3%. We expect the firm to keep investing at these levels, which should bode well for its long-term
PepsiCo is a global leader in snacks and beverages,
competitive position. Our midteens operating margin assumptions remain in place over the 10-year
owning well-known household brands including Pepsi,
Mountain Dew, Gatorade, Lay’s, Cheetos, and Doritos, forecast period.
among others. The company dominates the global savory
snacks market and also ranks as the second-largest Business Strategy & Outlook Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
beverage provider in the world (behind Coca-Cola) with Following years of anemic growth due to operational missteps and underinvestment, management has
diversified exposure to carbonated soft drinks, or CSD, as worked to right PepsiCo’s ship, even amid COVID-19-related disruptions and inflation. But we think
well as water, sports, and energy offerings. Convenience
there is more room to go, as the firm benefits from secular tailwinds in the snack business, growth
foods account for 55% of its total revenue, with
initiatives in select attractive beverage subcategories (energy drinks, for one) and regional markets
beverages making up the rest. Pepsi owns the bulk of its
manufacturing and distribution capacity in the United (Africa, Asia-Pacific), and an integrated business model facilitating more effective commercialization.
States and overseas. International markets make up 40%
of total sales and one third of operating profits. Thanks to the strong snack and beverage brands underpinning close retail relationships combined with
its massive scale and bargaining edge, we rate the firm as wide-moat and don’t foresee this position as
wavering. For one, we see Pepsi’s convenient snack lineup as well placed to bolster its share by
leveraging unrivalled brand awareness, operational scale, and retail relations. Within its beverage mix
the firm is exploring a variety of options from nascent, in-house brands to brand licensing from third-
party category leaders to expand its revenue base in nonsparkling categories, adding to its distribution
clout and augmenting its carbonated drinks that have struggled thus far to narrow the gap with Coca-
Cola.

Demand for snacks and beverages tends to remain resilient throughout economic cycles, and a large
end-to-end supply chain gives Pepsi better control over execution, helping to shield its operations from
exogenous shocks. Risks and uncertainties abound, nonetheless, including inroads from e-commerce
and hard discounters that introduce more competition and disrupts the pricing structure; consumption
pattern shifts driven by health awareness; and cumbersome regulations and taxes that discourage the
use of plastic packaging and the intake of sugar, sodium, and saturated fat. That said, a nimble and
pragmatic approach, coupled with inherent brand prowess and manufacturing/distribution scale, should
enable the firm to navigate the evolving competitive landscape while enhancing its returns.

Bulls Say Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
u Demographic and lifestyle shifts could further fuel snack consumption globally beyond our expectations.
u Even as CSD volumes wane in mature markets, the diversity of Pepsi’s beverage portfolio should offer
growth opportunities in both developed and emerging markets.
u Despite its close relationships with brick-and-mortar retailers, PepsiCo has invested in omnichannel
capabilities and a digitally-enhanced supply chain that positions the firm for growth even as consumer
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 3 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

Competitors
PepsiCo Inc PEP Coca-Cola Co KO General Mills Inc GIS Keurig Dr Pepper Inc KDP

Last Close Last Close Last Close Last Close

172.78 59.62 75.22 34.87
Fair Value Fair Value Fair Value Fair Value
170.00 58.00 75.00 34.00
Uncertainty : Low Uncertainty : Low Uncertainty : Low Uncertainty : Medium

Economic
Analysis Moat Wide
Security 1 Wide
Security 2 Narrow
Security 3 Narrow
Security 4
Moat Trend Stable Stable Negative Negative
Currency USD USD USD USD
Fair Value 170.00 2 Nov 2022 10:32, UTC 58.00 13 May 2022 01:54, UTC 75.00 11 Jan 2023 17:27, UTC 34.00 18 Aug 2022 21:08, UTC
1-Star Price 212.50 72.50 93.75 45.90
5-Star Price 136.00 46.40 60.00 23.80
Assessment Fairly Valued 9 Feb 2023 Over Valued 9 Feb 2023 Fairly Valued 8 Feb 2023 Fairly Valued 8 Feb 2023
Morningstar Rating QQQ9 Feb 2023 22:25, UTC QQ9 Feb 2023 22:25, UTC QQQ9 Feb 2023 22:25, UTC QQQ9 Feb 2023 22:25, UTC
Analyst Dan Su, Senior Equity Analyst Dan Su, Senior Equity Analyst Erin Lash, Sector Director Dan Su, Senior Equity Analyst
Capital Allocation Exemplary Exemplary Standard Standard
Price/Fair Value 1.02 1.03 1.00 1.03
Price/Sales 2.84 6.14 2.38 3.65
Price/Book 12.43 11.32 4.41 1.97
Price/Earning 24.49 26.19 15.81 27.24
Dividend Yield 2.64% 2.95% 2.81% 2.22%
Market Cap 235.81 Bil 258.26 Bil 44.66 Bil 49.38 Bil
52-Week Range 153.37—186.84 54.02—67.20 61.67—88.34 33.35—41.31
Investment Style Large Core Large Core Large Core Large Core

shopping patterns bifurcate further.

Bears Say Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
u Shifting consumer preference to healthier snacks and beverages may impede the firm’s ability to pass
on higher costs in price increases thus weighing on margins and returns.
u Integration of acquisitions in regions that PepsiCo has less experience (such as Africa) may distract
management attention from its long-term strategic course.
u The shortage of bottlers with sufficient scale and experience in international markets will continue to
handicap PepsiCo’s efforts to narrow the gap with rival Coca-Cola.

Economic Moat Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
We surmise that PepsiCo has built a wide economic moat around its global snacks and beverage
operations, thanks to an impressive ensemble of household brands underpinning consumer loyalty and
close retailer relationships, as well as significant scale benefits ($79 billion revenue base, global

© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 4 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

manufacturing and distribution capacity) that bring bargaining power and lower operational costs. We
expect the strong intangible assets and cost advantage to enable the firm to deliver investment returns
that exceed its cost of capital for more than 20 years. On our estimate, PepsiCo will generate returns on
invested capital, or ROICs, including goodwill, averaging in the mid-20s over our explicit 10-year forecast
period, compared with our weighted average cost of capital at 7.1%.

Evidencing its dominant standing, PepsiCo ranks as number one in the $200 billion global savory snacks
market, controlling 22% of the market per Euromonitor through well-known brands such as Lay's,
Cheetos, and Doritos. Consistent brand investments ($5 billion, 6.5% of sales), similar to the level of
spending by wide-moat peers Mondelez and Kellogg (5.2% and 5.5% of sales, respectively) have
reinforced the image of these snacks as affordable treats in today's fast-paced life, thus allowing the
snack provider to fetch pricing gains above inflation while maintaining healthy volume growth. As an
example, over the past five years, the Frito-Lay North America business unit (about half of PepsiCo's
snack sales) grew price/mix at an average annual rate of 2.8%, ahead of snack price inflation at 0.9%
(per U.S. Bureau of Labor Statistics), while keeping volume growth at 2%. We believe trends are similar
in major international markets. As Pepsi continues to focus on innovation in areas such as ingredients
and packs to meet consumers' evolving snacking habits and preferences, we expect its snack brands
will remain top of mind for a wide variety of consumer occasions and maintain pricing power.

Further, as the world's second-largest beverage provider behind Coca-Cola, PepsiCo owns a broad
portfolio of strong brands in carbonated soft drink, or CSD, and nonsparkling categories and operates
the bulk of bottling capacities in-house to better control the commercialization process. The company
has kept a firm grip on its number two position in the CSD category—roughly half of total beverage
volume sold by PepsiCo—which we believe still offers room to grow through higher penetration
primarily in emerging markets. Beyond this global growth potential, we posit Pepsi has built strong
brand loyalty on taste preferences and emotional connections, and when juxtaposed with the low 5%
private-label penetration that categorizes the space, we think PepsiCo's well-known CSD brands are
poised to continue to extract strong investment returns through its pricing power. Outside of the CSD
category, the company has successfully diversified its reach by bringing strong brands into the fold,
realizing volume share gains in structural growth areas such as sports and energy drinks. For one, the
Gatorade brand dominates the sports category with a 43%-plus volume share globally per Euromonitor
and continues to broaden its brand appeal and reach with smart advertising and innovation in
ingredients and flavoring. In energy drinks, while its current volume share at 11% per Beverage Digest
ranks the firm third after entrenched leaders Monster and Red Bull, PepsiCo is poised to narrow the gap
utilizing a multi-brand approach with Rockstar and Mountain Dew at the core to score some share gains
in a market increasingly segmented by lifestyle needs. Top volume shares in the ready-to-drink coffee
and tea categories, under the Lipton and Starbucks brands licensed from Unilever and Starbucks, also
help fortify PepsiCo's competitive edge by augmenting its beverage lineup, adding to its distribution
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 5 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

scale, and further deepening its relationship with retailers with extra touchpoints during delivery and
shelf planning.

A strong portfolio of top-selling brands that drives traffic and purchase in both the snack and beverage
aisles makes PepsiCo an indispensable partner to most retailers from grocers to gas station stores.
Equipped with a full suite of beverages in both CSD and nonsparkling categories, a variety of snack
brands catering to different budget sizes and regional preferences, and a technology enhanced direct-
to-store logistics system, PepsiCo provides an efficient, one-stop solution to retail chains for inventory
planning, stocking, and replenishment that is hard to match. The reliability and flexibility of a proven
distribution giant like PepsiCo should be deemed particularly valuable now, as many retailers are still
reeling from logistics bottlenecks. In return for these benefits, PepsiCo earns favorable shelf allocation/
placement and some liberty in designing and implementing in-store promotions that reinforce brand
awareness and pricing power. Close retailer collaboration also enables PepsiCo to derive valuable
insights on consumers and retail dynamics from transaction and logistics data analytics, which should
inform timely and precise commercial plans and execution to keep the firm at the top of its game.

We see cost advantage as a second pillar to our wide economic moat rating on PepsiCo. With a massive
revenue base at almost $80 billion, the firm commands significant bargaining power in a wide range of
procurement negotiations ranging from raw materials to advertising services. Purchases for key
ingredients such as sugar, sweeteners, seasoning, and cooking oil each take only a single-digit-percent
of a dispersed basket for PepsiCo, allowing the firm to tightly manage procurement costs even during
periods of high inflation. We also see a cost edge stemming from its massive distribution scale, allowing
the firm to reach more retailers and consumers faster and at a lower cost. The scale benefit allows
PepsiCo to not only accelerate its own product commercialization to maximize profitable share gains in
new and existing categories, but also attract desirable partners to license their brands to the firm's
distribution platform, adding to its scale and distribution clout. We would point to PepsiCo's 30-yearlong
successful distribution partnerships with wide-moats Unilever and Starbucks (both topnotch operators
in and of themselves) in the tea and coffee categories as strong examples of PepsiCo's distribution scale
and prowess.

Fair Value and Profit Drivers Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
We are raising our fair value estimate for PepsiCo to $170 per share (from $164), which implies a 2023
EV/adjusted EBITDA multiple of 17 times. The increase is driven by the combination of a higher earnings
per share projection in fiscal 2022 at $6.76 (up from $6.65, based on year-to-date marks) plus a more
robust longer-term sales growth projection (at an average of 5.2% over the next five years, versus 4.2%
previously) mainly due to our more optimistic forecast for Frito-Lay North America (7.5% CAGR versus
4.9%) and for Asia-Pacific (7.3% versus 6.1%).

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

In the coming years, we see broad-based strength in its snack revenue growth, whereas trends are
more mixed in the beverage business. We expect its strong brands, coupled with secular tailwinds in
convenience food consumption, to drive solid, mid- to high-single-digit growth in snack revenue. A
diverse beverage portfolio should also enable PepsiCo to garner an expanding share in the non-CSD
categories such as sports, water, and ready-to-drink coffee, but its CSD business will likely remain
flattish with healthy emerging market growth offsetting soft demand in the U.S. and Western Europe.
We forecast overall beverage sales to grow at a low-single-digit clip over the next 10 years. Historically,
PepsiCo has augmented organic growth with strategic acquisitions, and we expect the two-pronged
growth strategy to continue. However, we have refrained from incorporating M&A into our explicit
forecast until we gain better visibility surrounding its deal pipeline.

On the profitability front, we have modeled operating margins that widen by 310 basis points to 17.1%
at the end of our 10-year forecast period, relative to 2021. In addition to gross margin expansion of
roughly 100 basis points over the period thanks to manufacturing efficiency gains in the snack business
and a slightly higher mix of international beverage business with an outsourced model, we forecast
better leverage of marketing and advertising expense (5.8% of sales by 2031 versus 6.4% in 2021) and
more efficient, technology-enabled distribution spending (16.1% of sales by 2031 versus 17.2% in 2021).

Risk and Uncertainty Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
We award a Low Morningstar Uncertainty Rating to PepsiCo. With the ubiquity of smartphones and
social media, food and beverage brands are constantly under the scrutiny of consumers. Any
messaging, consumer experience, social, or sustainability practice that is perceived to be inconsistent
with the company’s positioning could be brought under the limelight, and without timely and
appropriate response, result in brand damage, and a temporary or long-term hit to volume demand and
pricing power.

Exposure to international markets with divergent economic and demographic trends put to the test
PepsiCo’s ability to adapt to a rapidly evolving operating environment and address issues ranging from
currencies and cost inflation to labor relations and geopolitical unrest. That said, with 60 of revenues
from North America, PepsiCo is more insulated compared to beverage peer Coca-Cola.

With growing health awareness among consumers, PepsiCo also faces the challenge of keeping a
delicate balance between taste appeal and health considerations. Reformulation and recipe
modification efforts notwithstanding, consumer concerns regarding the health impact from savory snack
and beverage products may persist, or PepsiCo’s efforts to assuage such concerns may become cost
inefficient and weigh on margins.

Capital Allocation Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

We assign an Exemplary capital allocation rating to PepsiCo, based on our view that the company has a
sound balance sheet, a good track record of investments for long-term value creation, and an
appropriate shareholder distribution practice blending cash dividends and share repurchases.

First, we view PepsiCo as in excellent financial health. It has a strong balance sheet, with net debt to
EBITDA projected to fall below 2 times in 2022 and onward. As such, we don’t foresee any problem for
the firm to maintain its Tier 1 commercial paper access to short-term funding at competitive rates when
necessary. In addition, the firm has a solid cash position and a projected strong free cash flow
generation ($11.7 billion on average per year, 12.6% of sales) over the next five years. All in, we believe
the company is well-equipped financially to withstand external shocks and to fund its growth plans.

On the investment front, we give the company credit for heavy spending over the years behind its snack
brand portfolio, distribution system, and research and development that has driven and should continue
to result in solid organic growth, underpinning its global dominance in the structurally attractive snack
business, where its market share is nine times ahead of its closest competitor. While the beverage
business underwent a period of underinvestment, the situation was rectified since current CEO Ramon
Laguarta took the helm in 2018, as the company stepped up spending to refresh its core brands, while
bringing to market versions of its classic recipes to cater to a growing health-conscious crowd. Mergers
and acquisitions have always been a part of the firm’s growth roadmap, with PepsiCo scoring successes
with deals such as the Quaker Oats acquisition in 2001, which gave PepsiCo dominant sports drink
brand Gatorade and a long runway of growth in the nonsparkling category. Its more recent acquisitions
in food (Pioneer Foods, Be & Cheery) and beverage (Rockstar), though smaller in size, fit a similar
strategic profile and offer the firm exposure to attractive categories (energy drinks, nuts and seeds) and
attractive emerging markets (Africa and China). The transactions for Be & Cheery and Pioneer Foods
deals valued the two businesses at price/sales multiples of roughly 1 times and 1.2 times, respectively,
which strikes us as reasonable. However, we view the Rockstar acquisition as richly valued, with price/
sales at over 20 times. We appreciate the strategic value of Rockstar (2% global volume share in energy
drinks per Euromonitor, popular in the convenience store channel) to PepsiCo (roughly 4% global volume
share prior to the Rockstar deal, according to Euromonitor). Still, we believe the company overpaid in its
push to refresh its sleepy energy drink lineup. In the coming years, we expect strategic M&A to remain
part of PepsiCo’s long-term growth strategy.

On shareholder distributions, PepsiCo has returned cash to shareholders consistently with a

combination of cash dividends and share buybacks. It maintained a payout ratio averaging more than
70% over the past five years, with dividends per share growing at an average of 7% each year. Over our
10-year explicit forecast period, we forecast the payout ratio to stay above 70% on average and the
dividend payment to grow 7.7% annually. Share buybacks have fluctuated from year to year, which we
believe has been prudent, as we believe management should consider buybacks only when the stock

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

trades below its intrinsic value, without committing to a yearly target at a fixed amount.

Analyst Notes Archive

Wide-Moats Coca-Cola and PepsiCo Showcase Pricing Power Amid Inflationary Pressure; Shares
Not Cheap Dan Su, CFA, Senior Equity Analyst, 2 Nov 2022
Concerns abound as it pertains to inflation and the ultimate consumer response, but we continue to
believe wide-moats Coca-Cola and PepsiCo are well positioned to navigate the uncertain landscape. Our
confidence in their durable competitive advantage stems from stout brand portfolios, which underpin
strong pricing power and close retailer relationships, and from scale benefits due to the expansive
global footprint each maintains. This pricing power has been evidenced this year as Coke and Pepsi
have realized low-double-digit benefits from price/mix amid cost inflation and currency headwinds, but
this has not impeded volumes, and we don’t see this ability to unearth gains in pricing and volumes
faltering long-term.

While we’re sticking to our $58 fair value estimate for Coca-Cola (our mid-single-digit top-line projection
intact), we’re raising our intrinsic valuation for Pepsi to $170 from $164 to reflect a more robust midcycle
sales growth outlook (5.2%, versus 4.2% prior). This is driven by our more optimistic expectations for
global snacks, as we think investments in data and analytics should enable it to more effectively cater to
consumers’ penchant for convenient, on-trend fare. To a lesser extent, we also surmise Pepsi is
positioned to accelerate international diversification of its previously U.S.-focused beverage portfolio,
leveraging recent tie-ups. Alongside top-line growth, we expect both companies to bolster profits by
extracting efficiency gains, with Coke widening operating margins to 30.1% in fiscal 2026 (up by 140
basis points relative to 2021), and Pepsi lifting its margins by 220 basis points over the same period to
16.2%.

Even as we believe both Coke and Pepsi are equipped to withstand evolving macroeconomic and
competitive challenges over the long term, we don’t see current share prices offering a compelling value
to investors. In this context, both operators trade at a modest premium (of 4% and 7%, respectively) to
our fair value estimates.

Pepsi Shows Robust Pricing Power in Third Quarter Despite Weak Macro Climate; Shares Fairly
Valued Erin Lash, CFA, Sector Director, 12 Oct 2022
Wide-moat PepsiCo displayed its brand strength in the third quarter, chalking up impressive marks.
Organic revenue popped 16% (17% from higher prices and favorable mix, slightly offset by a 0.8%
drawdown in volume), while core constant-currency EPS grew 14%. We think the profit gains are quite
notable as the company faced mammoth inflationary headwinds, which management thinks will result
in a high-teens negative hit in fiscal 2022. We don’t think Pepsi is relying only on pricing for these gains;

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

it also remains committed to unearthing cost savings to offset the cost pressures it is facing.

In our view, consumers have shown an affinity for Pepsi’s beverage and snacking fare because of the
company's unwavering commitment to funneling resources toward innovation (as it pertains to
packaging and flavor) and marketing. We expect this will continue, with a mid-single-digit level of sales
directed to research, development, and advertising annually over our explicit forecast. In our view, this
spending has helped Pepsi align its mix with evolving consumer trends (convenience, health and
wellness), blunting the hit to volume caused by the higher prices it is charging at the shelf.

In light of its year-to-date results, the company raised its full-year guidance to 12% organic sales growth
(from 10% prior) and core EPS of $6.73 (from $6.63). While we intend to incorporate the recent results,
which could boost our $164 fair value estimate modestly, we don’t anticipate making any material
changes to our longer-term forecast for mid-single-digit top-line growth and high-teens operating
margins. This reflects our perspective that the current sales trajectory won't endure, as well as our
expectation that Pepsi will continue investing in supply chain automation and digitization to unlock
productivity enhancements. With the shares popping 5% after the earnings release, we suggest
investors await a more compelling risk/reward.

Inflationary Challenges Fail to Cease Wide-Moat Pepsi’s Growth Momentum; Shares Rich Erin Lash,
CFA, Sector Director, 12 Jul 2022
We think wide-moat Pepsi’s pricing power combined with the benefits of its scale and diverse portfolio
were on display in the second quarter. The firm delivered 13% organic revenue growth, which strikes us
as impressive when lapping 12.8% organic revenue growth in the same period a year ago. Further,
although pricing was up 12.1%, aggregate volumes ticked up at a low-single-digit rate, evidencing the
stout brand intangible assets Pepsi boasts. However, this strength was concentrated in the firm’s
international arms, which clocked 7%-14% volume gains, in contrast to nearly no volume gains in its
home turf. We attribute this languished unit growth in North American segments to the rash of cost
pressures facing consumers at the pump and throughout the grocery store, trends we don’t perceive
abating in the near term. However, we posit that Pepsi’s unwavering commitment to invest in research
and development as well as marketing (which we model at around 6.5% and 1% of sales by 2026,
respectively) should serve to buoy its competitive prowess over time.

Despite pronounced cost pressures, Pepsi’s stringent cost management manifested in 40 basis points of
adjusted operating margin improvement (to 16.9%). We think that the firm can hold margins in the high-
teens as it continues to enhance its cost profile through portfolio/channel optimization, price/pack
architecture, and cost-saving initiatives, which we view as prudent.

Taken together, management edged up its fiscal 2022 top-line expectations (to 10% organic sales
growth from 8% prior) but held in line on its 8% core constant currency EPS growth (implying core EPS
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Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NASDAQ - ALL MARKETS Page 10 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

of $6.63). We may adjust our near-term forecast based on results through the first six months of the
year but see little to warrant a material change in our long-term forecast (which includes a mid-single-
digit rate top-line growth). With shares trading near our existing $164 fair value estimate, we suggest
investors await a more attractive entry point.

Wide-Moat-Rated Coca-Cola and PepsiCo Taking Inflation in Stride, but Shares Look a Bit Expensive
Chris Owen, Equity Analyst, 13 May 2022
With leading brands and stout cost advantages, we’ve long believed that Coca-Cola (the dominant
player in the carbonated soft drink—CSD—space, with nearly 21% value share per Euromonitor) and
PepsiCo (the top operator in global savory snacks, with nearly 22% value share, and the second-largest
player in the CSD market with 10% share) have carved out wide economic moats. From our vantage
point, this edge has manifest in pricing power and negotiating leverage with suppliers, which we think
will persist and prove particularly valuable as inflationary headwinds show no signs of diminishing.

While we think both Coke and Pepsi are poised to navigate the challenging landscape relatively
unscathed, we don’t currently see much value in shares, which trade north of our revised intrinsic
valuations (by around 5%-10%).

In this context, we’ve lowered our fair value estimate for Coke by $1 per share to $58, to reflect stepped-
up cost pressures that we expect will linger the next several quarters, culminating in our forecast for
average gross margins through 2025 of 61.2%, versus 62.4% prior. However, we continue to believe that
Coke’s data-driven approach to innovation, combined with its vast international footprint and continued
brand support, should result in 5.2% average annual sales growth over our 10-year explicit forecast.

Even though Pepsi isn’t immune to these challenges, we’re raising our fair value estimate to $164, from
$154, after incorporating a slightly higher average midcycle revenue growth rate (4.3% versus 3.8%
prior), as we now expect recent investments in its brands, direct-store delivery, manufacturing capacity,
and data analytics to bolster its top line prospects. We forecast this growth will be achieved against
16.9% operating margins by fiscal 2026 (up 250 basis points relative to fiscal 2021), as the firm funds
continued investments in its brands with savings extracted from its operations.

Inflationary Pressure Accelerates in Q1, but We Think Pepsi Is Poised to Prosper; Shares Expensive
Chris Owen, Equity Analyst, 26 Apr 2022
We believe wide-moat Pepsi’s advantaged competitive position in snacks and beverages was evident in
the first quarter, as demonstrated by the pricing power that emanated from its leading brand mix.
Organic revenue increased 14%, on top of 2% growth a year ago, driven by a 10% price contribution and
low-single-digit volume growth. Pepsi’s outperformance was even apparent in markets where
consumers have historically proven more price sensitive. It chalked up 11% and 6% volume growth in

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

Africa, the Middle East, and South Asia (6% of sales) and Latin America (9% of sales), respectively,
despite significant price increases of 7% and 16%. By tailoring its mix to evolving consumer trends,
Pepsi can achieve mid-single-digit revenue growth long term, in our view.

Cost inflation at a midteens annual percentage level (per management) took a bite out of Pepsi’s
quarterly profitability, as its adjusted operating margin declined 50 basis points to 14.8%. We believe
that Pepsi will avail itself of all the arrows in its quiver—productivity efficiencies (to exceed its former
$1 billion cost savings goal), price increases, real-time data-driven consumer insights, and smaller
quantity packaging—to deal with the inflationary threat. Despite these pressures, we think the firm
remains committed to investments in both research and development (we model 1% of sales this year)
and advertising and promotion (we model close to 7% of sales), supportive of its strong brand intangible
assets. We expect Pepsi will improve operating margins to the high-teens over our explicit forecast.

We regard the firm’s adjusted 2022 outlook of 8% sales growth (versus 6% formerly) and 8% constant
currency adjusted EPS growth as achievable despite inflationary pressures. We may increase our $154
fair value estimate slightly to reflect the time value of money, but with shares trading at a low-double-
digit percentage premium to our intrinsic valuation, we would not advise building a position.

Coke, Pepsi Suspend Russian Operations; Minimal Change to FVE Erin Lash, CFA, Sector Director, 9
Mar 2022
As the war in Ukraine persists, leading beverage operators are opting to halt their businesses in Russia.
In this context, citing the ongoing humanitarian crisis, wide-moat Coca-Cola is suspending its operations
in Russia, a decision that follows similar actions by companies across a wide swath of industries. Coke’s
exposure in Russia and Ukraine represents between 1% and 2% of revenue and operating income and
includes a 21% stake in its regional bottler/distributor. We do not expect Coke’s suspension of Russian
operations to result in a change to our $59 fair value estimate, although we will continue to monitor this
dynamic situation. We acknowledge that the conflict in Ukraine may increase pre-existing inflationary
pressures, which management had estimated as a mid-single-digit headwind to cost of goods sold its
recent fiscal 2022 guidance, and thus could pose an incremental challenge for the company. We believe
Coke is well-positioned to navigate a heightened inflationary environment given its strong brand,
innovation capabilities and marketing support, as well as greater operational flexibility achieved per its
experience with the COVID-19 pandemic.

Wide-moat Pepsi will also suspend its nonessential operations in Russia, including its beverage
business, capital spending and promotional activity, while continuing to sell milk/dairy and baby
products. In 2021, Pepsi reported a meaningful $3.4 billion in revenue, or slightly more than 4% of its
annual sales, from the country. Pepsi’s Russian action may lead to a minimal reduction in our $154 fair
value estimate, but we continue to believe that the company’s pricing power, strength across core

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

snack and beverage brands coupled with its differentiated packaging and marketing capabilities should
support its competitive position. K

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Competitors Price vs. Fair Value

Coca-Cola Co KO

Last Close: 59.62

200 Fair Value: 58.00
13 May 2022 01:54, UTC

150 Over Valued

Under Valued
100

0
Analytics
2018 2019 2020 2021 2022 YTD
0.97 1.03 1.02 1.00 1.10 1.03 Price/Fair Value
6.60 20.27 2.04 11.03 10.40 -6.27 Total Return %
Morningstar Rating

Total Return % as of 9 Feb 2023. Last Close as of 9 Feb 2023. Fair Value as of 13 May 2022 01:54, UTC.

General Mills Inc GIS

Last Close: 75.22

200 Fair Value: 75.00
11 Jan 2023 17:27, UTC

150 Over Valued

Under Valued
100

0
Analytics
2018 2019 2020 2021 2022 YTD
0.68 0.99 1.11 1.01 1.15 1.00 Price/Fair Value
-31.02 42.58 13.48 18.06 27.56 -9.65 Total Return %
Morningstar Rating

Total Return % as of 9 Feb 2023. Last Close as of 9 Feb 2023. Fair Value as of 11 Jan 2023 17:27, UTC.

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Keurig Dr Pepper Inc KDP

Last Close: 34.87

200 Fair Value: 34.00
18 Aug 2022 21:08, UTC

150 Over Valued

Under Valued
100

0
2018 2019 2020 2021 2022 YTD Analytics

1.19 1.11 1.19 1.21 1.05 1.03 Price/Fair Value

34.06 15.25 12.61 17.30 -1.19 -1.65 Total Return %
Morningstar Rating

Total Return % as of 9 Feb 2023. Last Close as of 9 Feb 2023. Fair Value as of 18 Aug 2022 21:08, UTC.

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

TM TM
Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1

172.78 USD 170.00 USD 1.02 235.81 USD Bil Wide Stable Low Exemplary ;;;;;
9 Feb 2023 1 Feb 2023 06:00, UTC
9 Feb 2023 2 Nov 2022 10:32, UTC

Morningstar Historical Summary

Financials as of 31 Dec 2022
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Bil) 66 67 63 63 64 65 67 70 79 86 86 86
Revenue Growth % 1.4 0.4 -5.4 -0.4 1.2 1.8 3.9 4.8 12.9 8.7 8.7 8.7
EBITDA (USD Bil) 12 12 11 12 13 13 13 13 15 15 15 15
EBITDA Margin % 18.8 18.4 17.2 19.5 20.7 19.8 19.5 18.8 18.8 17.3 17.3 17.3
Operating Income (USD Bil) 9.71 9.58 9.71 9.80 10.28 10.11 10.29 10.12 11.16 11.36 11.36 11.36
Operating Margin % 14.6 14.4 15.4 15.6 16.2 15.6 15.3 14.4 14.0 13.2 13.2 13.2
Net Income (USD Bil) 6.74 6.51 5.45 6.33 4.86 12.52 7.31 7.12 7.62 8.91 8.91 8.91
Net Margin % 10.1 9.8 8.6 10.1 7.6 19.4 10.9 10.1 9.6 10.3 10.3 10.3
Diluted Shares Outstanding (Mil) 1,560 1,527 1,485 1,452 1,438 1,425 1,407 1,392 1,389 1,387 1,387 1,387
Diluted Earnings Per Share (USD) 4.32 4.27 3.67 4.36 3.38 8.78 5.20 5.12 5.49 6.42 6.42 6.42
Dividends Per Share (USD) 2.24 2.53 2.76 2.96 3.17 3.59 3.79 4.02 4.25 4.53 4.53 4.53

Valuation as of 31 Jan 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 2.0 2.2 2.3 2.5 2.7 2.4 2.9 3.0 3.1 3.0 3.0 2.8
Price/Earnings 19.5 20.9 29.7 22.9 24.8 31.7 15.6 29.3 29.6 25.8 25.8 24.4
Price/Cash Flow 12.9 14.9 14.1 14.7 17.9 18.3 19.8 19.3 21.7 22.2 22.2 21.1
Dividend Yield % 2.7 2.68 2.76 2.83 2.64 3.25 2.77 2.71 2.45 2.5 2.5 2.65
Price/Book 5.7 6.1 10.8 11.9 12.9 15.1 13.5 15.2 15.1 13.1 13.1 12.4
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 31 Dec 2022
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % 8.9 8.8 7.8 8.8 6.3 15.9 9.4 8.3 8.2 9.7 9.7 9.7
ROE % 29.0 31.2 37.2 55.1 44.3 98.7 49.9 50.4 51.7 53.7 53.7 53.7
ROIC % 14.1 14.2 13.4 15.6 11.0 27.6 17.1 15.2 15.8 17.1 17.1 17.1
Asset Turnover 0.9 0.9 0.9 0.9 0.8 0.8 0.9 0.8 0.9 0.9 0.9 0.9
Financial Leverage
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 50.1 57.7 71.0 73.0 75.6 66.1 66.4 75.0 69.2 67.5 67.5 —
Equity/Assets % 31.3 24.7 17.1 15.0 13.6 18.7 18.8 14.5 17.4 18.6 18.6 —
Total Debt/EBITDA 2.4 2.4 3.1 3.0 3.0 2.5 2.5 3.4 2.7 2.7 2.7 —
EBITDA/Interest Expense 13.7 13.5 11.2 9.1 11.4 10.5 14.0 11.7 8.0 15.9 15.9 15.9

Morningstar Analyst Historical/Forecast Summary as of 01 Nov 2022

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 12-31-2021 2021 2022 2023 2024 2025
Price/Sales 2.9 3.0 2.8 2.7 2.6
Revenue (USD Mil) 70,372 79,474 84,901 88,140 92,958 Price/Earnings 26.9 27.7 25.6 24.0 22.0
Revenue Growth % 4.8 12.9 6.8 3.8 5.5 Price/Cash Flow 32.1 34.4 29.6 26.4 24.2
EBITDA (USD Mil) 12,983 14,003 15,877 16,659 17,848 Dividend Yield % 2.7 2.5 2.6 2.9 3.2
EBITDA Margin % 18.5 17.6 18.7 18.9 19.2 Price/Book 15.3 15.0 14.3 13.3 12.1
EV/EBITDA 18.4 19.6 17.1 16.3 15.2
Operating Income (USD Mil) 10,080 11,162 12,754 13,398 14,453
Operating Margin % 14.3 14.0 15.0 15.2 15.6
Net Income (USD Mil) 7,688 8,689 9,328 9,878 10,682
Net Margin % 10.9 10.9 11.0 11.2 11.5
Diluted Shares Outstanding (Mil) 1,392 1,389 1,380 1,371 1,362
Diluted Earnings Per Share(USD) 5.52 6.26 6.76 7.21 7.84
Dividends Per Share(USD) 4.02 4.25 4.53 5.02 5.53

Appendix
Historical Morningstar Rating
PepsiCo Inc PEP 9 Feb 2023 22:25, UTC
December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - - - - - - - - - QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQ QQ QQ QQQ QQ QQQ QQQ QQQ QQ QQ QQ QQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQ QQQ QQQQ QQQ QQ
Dec 2019 Nov 2019 Oct 2019 Sep 2019 Aug 2019 Jul 2019 Jun 2019 May 2019 Apr 2019 Mar 2019 Feb 2019 Jan 2019
QQQ QQQ QQ QQ QQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ
Dec 2018 Nov 2018 Oct 2018 Sep 2018 Aug 2018 Jul 2018 Jun 2018 May 2018 Apr 2018 Mar 2018 Feb 2018 Jan 2018
QQQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ

Coca-Cola Co KO 9 Feb 2023 22:25, UTC

December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - - - - - - - - - QQ QQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQ QQ QQQ QQQ QQ QQ QQ QQ QQ QQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQQ QQQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQ
Dec 2019 Nov 2019 Oct 2019 Sep 2019 Aug 2019 Jul 2019 Jun 2019 May 2019 Apr 2019 Mar 2019 Feb 2019 Jan 2019
QQQ QQQ QQQ QQ QQ QQ QQ QQQ QQQ QQQ QQQQ QQQ
Dec 2018 Nov 2018 Oct 2018 Sep 2018 Aug 2018 Jul 2018 Jun 2018 May 2018 Apr 2018 Mar 2018 Feb 2018 Jan 2018
QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ

General Mills Inc GIS 9 Feb 2023 22:25, UTC

December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - - - - - - - - - QQQ QQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQ QQ QQ QQ QQQ QQQ QQQ QQQ QQ QQQ QQQ QQQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQQ QQQ QQQQ QQQQ QQQ QQQ QQQ QQ QQQ QQ QQQ QQQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQ QQ QQ QQ QQ QQ QQ QQ QQ QQQ QQQQ QQQ
Dec 2019 Nov 2019 Oct 2019 Sep 2019 Aug 2019 Jul 2019 Jun 2019 May 2019 Apr 2019 Mar 2019 Feb 2019 Jan 2019
QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQQ QQQQQ
Dec 2018 Nov 2018 Oct 2018 Sep 2018 Aug 2018 Jul 2018 Jun 2018 May 2018 Apr 2018 Mar 2018 Feb 2018 Jan 2018
QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQQ QQQQ QQQ

Keurig Dr Pepper Inc KDP 9 Feb 2023 22:25, UTC

December November October September August July May May April March February January
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - - - - - - - - - QQQ QQQ
Dec 2022 Nov 2022 Oct 2022 Sep 2022 Aug 2022 Jul 2022 Jun 2022 May 2022 Apr 2022 Mar 2022 Feb 2022 Jan 2022
QQQ QQ QQ QQQ QQ QQ QQQ QQQ QQ QQ QQ QQ
Dec 2021 Nov 2021 Oct 2021 Sep 2021 Aug 2021 Jul 2021 Jun 2021 May 2021 Apr 2021 Mar 2021 Feb 2021 Jan 2021
QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ QQ
Dec 2020 Nov 2020 Oct 2020 Sep 2020 Aug 2020 Jul 2020 Jun 2020 May 2020 Apr 2020 Mar 2020 Feb 2020 Jan 2020
QQ QQ QQQ QQQ QQ QQ QQQ QQQ QQQ QQQ QQ QQQ
Dec 2019 Nov 2019 Oct 2019 Sep 2019 Aug 2019 Jul 2019 Jun 2019 May 2019 Apr 2019 Mar 2019 Feb 2019 Jan 2019
QQ QQ QQQ QQQ QQ QQ QQ QQ QQ QQ QQ QQ
Dec 2018 Nov 2018 Oct 2018 Sep 2018 Aug 2018 Jul 2018 Jun 2018 May 2018 Apr 2018 Mar 2018 Feb 2018 Jan 2018
QQ QQ QQ QQ QQQ QQ QQQ QQQ QQQ QQQ QQQ -

Research Methodology for Valuing Companies

Overview timate of a firm’s cost of capital, or weighted average In this stage, which can last five to 10 years, analysts
At the heart of our valuation system is a detailed projec- cost of capital (or WACC). Without a moat, profits are make full financial statement forecasts, including items
tion of a company ’s future cash flows, resulting from our more susceptible to competition. We have identified five such as revenue, profit margins, tax rates, changes in
analysts’ research. Analysts create custom industry and sources of economic moats: intangible assets, switching workingcapital accounts, and capital spending. Based on
company assumptions to feed income statement, balance costs, network effect, cost advantage, and efficient scale. these projections, we calculate earnings before interest,
sheet, and capital investment assumptions into our glob- after taxes (EBI) and the net new investment (NNI) to de-
ally standardized, proprietary discounted cash flow, or Companies with a narrow moat are those we believe are rive our annual free cash flow forecast.
DCF, modeling templates. We use scenario analysis, inde- more likely than not to achieve normalized excess returns
for at least the next 10 years. Wide-moat companies are Stage II: Fade
pth competitive advantage analysis, and a variety of other
those in which we have very high confidence that excess The second stage of our model is the period it will take
analytical tools to augment this process. Moreover, we
returns will remain for 10 years, with excess returns more the company ’s return on new invested capital—the re-
think analyzing valuation through discounted cash flows
likely than not to remain for at least 20 years. The longer turn on capital of the next dollar invested (“RONIC”)—to
presents a better lens for viewing cyclical companies,
a firm generates economic profits, the higher its intrinsic decline (or rise) to its cost of capital. During the Stage II
high-growth firms, businesses with finite lives (e.g.,
value. We believe low-quality, no-moat companies will period, we use a formula to approximate cash flows in
mines), or companies expected to generate negative
see their normalized returns gravitate toward the firm’s lieu of explicitly modeling the income statement, balance
earnings over the next few years. That said, we don’t dis-
cost of capital more quickly than companies with moats. sheet, and cash flow statement as we do in Stage I. The
miss multiples altogether but rather use them as support-
length of the second stage depends on the strength of
ing cross-checks for our DCF-based fair value estimates.
When considering a company's moat, we also assess the company’s economic moat. We forecast this period to
We also acknowledge that DCF models offer their own
whether there is a substantial threat of value destruction, last anywhere from one year (for companies with no eco-
challenges (including a potential proliferation of estim-
stemming from risks related to ESG, industry disruption, nomic moat) to 10–15 years or more (for wide-moat com-
ated inputs and the possibility that the method may miss
financial health, or other idiosyncratic issues. In this con- panies). During this period, cash flows are forecast using
shortterm market-price movements), but we believe these
text, a risk is considered potentially value destructive if its four assumptions: an average growth rate for EBI over the
negatives are mitigated by deep analysis and our
occurrence would eliminate a firm’s economic profit on a period, a normalized investment rate, average return on
longterm approach.
cumulative or midcycle basis. If we deem the probability new invested capital (RONIC), and the number of years
of occurrence sufficiently high, we would not characterize until perpetuity, when excess returns cease. The invest-
Morningstar’s equity research group (” we,” “our”) be-
the company as possessing an economic moat. ment rate and return on new invested capital decline un-
lieves that a company’s intrinsic worth results from the
til a perpetuity value is calculated. In the case of firms
future cash flows it can generate. The Morningstar Rating
To assess the sustainability of excess profits, analysts per- that do not earn their cost of capital, we assume marginal
for stocks identifies stocks trading at a discount or premi-
form ongoing assessments of the moat trend. A firm’s ROICs rise to the firm’s cost of capital (usually attribut-
um to their intrinsic worth—or fair value estimate, in
moat trend is positive in cases where we think its sources able to less reinvestment), and we may truncate the
Morningstar terminology. Five-star stocks sell for the
of competitive advantage are growing stronger; stable second stage.
biggest risk adjusted discount to their fair values, where-
as 1-star stocks trade at premiums to their intrinsic worth. where we don’t anticipate changes to competitive ad-
vantages over the next several years; or negative when Stage III: Perpetuity
Four key components drive the Morningstar rating: (1) our we see signs of deterioration. Once a company’s marginal ROIC hits its cost of capital,
assessment of the firm’s economic moat, (2) our estimate we calculate a continuing value, using a standard per-
of the stock’s fair value, (3) our uncertainty around that 2. Estimated Fair Value petuity formula. At perpetuity, we assume that any
fair value estimate and (4) the current market price. This Combining our analysts’ financial forecasts with the growth or decline or investment in the business neither
process ultimately culminates in our singlepoint star rat- firm’s economic moat helps us assess how long returns creates nor destroys value and that any new investment
ing. on invested capital are likely to exceed the firm’s cost of provides a return in line with estimated WACC.
capital. Returns of firms with a wide economic moat rat-
ing are assumed to fade to the perpetuity period over a Because a dollar earned today is worth more than a dollar
1. Economic Moat
longer period of time than the returns of narrow-moat earned tomorrow, we discount our projections of cash
The concept of an economic moat plays a vital role not
firms, and both will fade slower than no-moat firms, in- flows in stages I, II, and III to arrive at a total present
only in our qualitative assessment of a firm’s long-term
creasing our estimate of their intrinsic value. value of expected future cash flows. Because we are
investment potential, but also in the actual calculation of
modeling free cash flow to the firm—representing cash
our fair value estimates. An economic moat is a structural
Our model is divided into three distinct stages: available to provide a return to all capital providers—we
feature that allows a firm to sustain excess profits over a
discount future cash flows using the WACC, which is a
long period of time. We define economic profits as re-
weighted average of the costs of equity, debt, and pre-
turns on invested capital (or ROIC) over and above our es- Stage I: Explicit Forecast
ferred stock (and any other funding sources), using ex-
Morningstar Equity Research Star Rating Methodology pected future proportionate long-term, market-value
weights.

3. Uncertainty Around That Fair Value Estimate

Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company ’s intrinsic
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
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Research Methodology for Valuing Companies

aimed at identifying the confidence we should have in as- Morningstar Equity Research Star Rating Methodology
signing a fair value estimate for a given stock.

Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
thing that can affect our ability to accurately predict
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.

Our recommended margin of safety—the discount to fair

value demanded before we ’ d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain factors.
we are about the potential dispersion of outcomes, the For more details about our methodology, please go to
greater the discount we require relative to our estimate of https://shareholders.morningstar.com. The Morningstar Star Ratings for stocks are defined be-
the value of the firm before we would recommend the low:
purchase of the shares. In addition, the Uncertainty Rat- Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad-
ing provides guidance in portfolio construction based on justed return is highly likely over a multiyear time frame.
Once we determine the fair value estimate of a stock, we
risk tolerance. Scenario analysis developed by our analysts indicates
compare it with the stock’s current market price on a
daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
Our Uncertainty Ratings are: Low, Medium, High, Very
lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
High, and Extreme.
which the stock is listed is open. Our analysts keep close ing upside potential.
tabs on the companies they follow, and, based on thor-
Margin of Safety
ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Qualitative Analysis
QRating estimates as warranted. justed return is likely.
Uncertainty Ratings QQQQQRating
Low 20% Discount 25% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
Medium 30% Discount 35% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
High 40% Discount 55% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Very High 50% Discount 75% Premium
serve as a gauge of the broader market’s valuation. When
Extreme 75% Discount 300% Premium QQ We believe investors are likely to receive a less than
there are many 5-star stocks, the stock market as a whole
is more undervalued, in our opinion, than when very few fair risk-adjusted return.
Our uncertainty rating is based on the interquartile range,
companies garner our highest rating.
or the middle 50% of potential outcomes, covering the Q Indicates a high probability of undesirable risk-adjus-
25th percentile–75th percentile. This means that when a ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
stock hits 5 stars, we expect there is a 75% chance that time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
the intrinsic value of that stock lies above the current our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
market price. Similarly, when a stock hits 1 star, we excessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
pect there is a 75% chance that the intrinsic value of that leaving the investor exposed to Capital loss.
prices may adjust).
stock lies below the current market price.
Our star ratings are guideposts to a broad audience and Other Definitions
4. Market Price individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
The market prices used in this analysis and noted in the goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
report come from exchange on which the stock is listed needs, and complete investment portfolio, among other
which we believe is a reliable source.
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
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Research Methodology for Valuing Companies

Capital Allocation Rating: Our Capital Allocation (or Sustainalytics analyzes over 1,300 data points to assess a situation or particular needs of any specific recipient. This
Stewardship) Rating represents our assessment of the company’s exposure to and management of ESG risks. In publication is intended to provide information to assist in-
quality of management’s capital allocation, with particu- other words, ESG Risk Ratings measures a company’s un- stitutional investors in making their own investment de-
lar emphasis on the firm ’s balance sheet, investments, managed ESG Risks represented as a quantitative score. cisions, not to provide investment advice to any specific
and shareholder distributions. Analysts consider compan- Unmanaged Risk is measured on an open-ended scale investor. Therefore, investments discussed and recom-
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing mendations made herein may not be suitable for all in-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- vestors: recipients must exercise their own independent
Corporate governance factors are only considered if they aged ESG Risk score is below 50. judgment as to the suitability of such investments and re-
are likely to materially impact shareholder value, though commendations in the light of their own investment ob-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are jectives, experience, taxation status and financial posi-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, tion.
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute,
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- The information, data, analyses and opinions presented
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- herein are not warranted to be accurate, correct, com-
Standard rating is most common as most managers will tries covered. plete or timely. Unless otherwise provided in a separate
exhibit neither exceptionally strong nor poor capital alloc- agreement, neither Morningstar, Inc. or the Equity Re-
ation. The ESG Risk Rating Assessment is a visual representa- search Group represents that the report contents meet all
tion of Sustainalytics ESG Risk Categories on a 1 to 5 of the presentation and/or disclosure standards applic-
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low able in the jurisdiction the recipient is located.
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes,
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit Except as otherwise required by law or provided for in a
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ separate agreement, the analyst, Morningstar, Inc. and
sidered execution, compensation, related party transac- the Equity Research Group and their officers, directors
tions, and accounting practices in the rating. Ratings should not be used as the sole basis in evaluating and employees shall not be responsible or liable for any
a company or security. Ratings involve unknown risks and trading decisions, damages or other losses resulting from,
Capital Allocation Rating: Our Capital Allocation (or uncertainties which may cause our expectations not to or related to, the information, data, analyses or opinions
Stewardship) Rating represents our assessment of the occur or to differ significantly from what was expected within the report. The Equity Research Group encourages
quality of management’s capital allocation, with particu- and should not be considered an offer or solicitation to recipients recipients of this report to read all relevant is-
lar emphasis on the firm ’s balance sheet, investments, buy or sell a security. sue documents (e.g., prospectus) pertaining to the secur-
and shareholder distributions. Analysts consider compan- ity concerned, including without limitation, information
ies’ investment strategy and valuation, balance sheet Risk Warning relevant to its investment objectives, risks, and costs be-
management, and dividend and share buyback policies. Please note that investments in securities are subject to fore making an in vestment decision and when deemed
Corporate governance factors are only considered if they market and other risks and there is no assurance or guar- necessary, to seek the advice of a legal, tax, and/or ac-
are likely to materially impact shareholder value, though antee that the intended investment objectives will be counting professional.
either the balance sheet, investment, or shareholder dis- achieved. Past performance of a security may or may not
tributions. Analysts assign one of three ratings: "Exem- be sustained in future and is no indication of future per- The Report and its contents are not directed to, or inten-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- formance. A security investment return and an investor ’s ded for distribution to or use by, any person or entity who
ation from an equity holder’s perspective. Ratings are de- principal value will fluctuate so that, when redeemed, an is a citizen or resident of or located in any locality, state,
termined on a forward looking and absolute basis. The investor ’s shares may be worth more or less than their country or other jurisdiction where such distribution, pub-
Standard rating is most common as most managers will original cost. A security’s current investment performance lication, availability or use would be contrary to law or
exhibit neither exceptionally strong nor poor capital alloc- may be lower or higher than the investment performance regulation or which would subject Morningstar, Inc. or its
ation. noted within the report. Morningstar’s Uncertainty Rating affiliates to any registration or licensing requirements in
serves as a useful data point with respect to sensitivity such jurisdiction.
Capital Allocation (or Stewardship) analysis published pri- analysis of the assumptions used in our determining a fair
or to Dec. 9, 2020, was determined using a different pro- value price. Where this report is made available in a language other
cess. Beyond investment strategy, financial leverage, and than English and in the case of inconsistencies between
dividend and share buyback policies, analysts also con- the English and translated versions of the report, the Eng-
sidered execution, compensation, related party transac- General Disclosure lish version will control and supersede any ambiguities
tions, and accounting practices in the rating. associated with any part or section of a report that has
Unless otherwise provided in a separate agreement, re-
cipients accessing this report may only use it in the coun- been issued in a foreign language. Neither the analyst,
Sustainalytics ESG Risk Rating Assessment:The ESG Morningstar, Inc., or the Equity Research Group guaran-
try in which the Morningstar distributor is based. Unless
Risk Rating Assessment is provided by Sustainalytics; a tees the accuracy of the translations.
stated otherwise, the original distributor of the report is
Morningstar company.
Morningstar Research Services LLC, a U.S.A. domiciled
financial institution. This report may be distributed in certain localities, coun-
Sustainalytics’ ESG Risk Ratings measure the degree to tries and/or jurisdictions (“Territories ”) by independent
which company’s economic value at risk is driven by en- third parties or independent intermediaries and/or distrib-
This report is for informational purposes only and has no
vironment, social and governance (ESG) factors. utors (“Distributors”). Such Distributors are not acting as
regard to the specific investment objectives, financial
agents or representatives of the analyst, Morningstar,
© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.
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Research Methodology for Valuing Companies

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© Morningstar 2023. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions ®
presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The
opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting
ß
from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner,
without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and
governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.

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PEP - PepsiCo Inc (Stock Report)

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PEP - PepsiCo Inc (Stock Report)

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Morningstar Equity Analyst Report | Report as of 10 Feb 2023 01:13, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NASDAQ - ALL MARKETS Page 1 of 21

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Price vs. Fair Value

Last Close: 172.78

150 Over Valued

The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Last Close Last Close Last Close Last Close

shopping patterns bifurcate further.

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

On shareholder distributions, PepsiCo has returned cash to shareholders consistently with a

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Analyst Notes Archive

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Competitors Price vs. Fair Value

Last Close: 59.62

150 Over Valued

General Mills Inc GIS

Last Close: 75.22

150 Over Valued

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Keurig Dr Pepper Inc KDP

Last Close: 34.87

150 Over Valued

1.19 1.11 1.19 1.21 1.05 1.03 Price/Fair Value

PepsiCo Inc PEP QQQ 9 Feb 2023 22:25, UTC

Morningstar Historical Summary

Valuation as of 31 Jan 2023

Morningstar Analyst Historical/Forecast Summary as of 01 Nov 2022

Coca-Cola Co KO 9 Feb 2023 22:25, UTC

General Mills Inc GIS 9 Feb 2023 22:25, UTC

Keurig Dr Pepper Inc KDP 9 Feb 2023 22:25, UTC

Research Methodology for Valuing Companies

3. Uncertainty Around That Fair Value Estimate

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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