PEP -- Time to buy? Message Board

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Non-Tech : PEP -- Time to buy?

PEP 147.56

+0.9%

Oct 30 3:59 PM EDT

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To: Geoff who wrote (348)	8/28/1998 2:30:00 PM
From: Kelly Sheppard	Read Replies (2) of 392

PEP looks good right now. I just picked up some Apr 30 Calls for $5.00. Now that's cheap. Look at the positives: 1. Rumour has Oct for the bottling operations IPO. This will inject a tonne of cash into PEP and get the capital intensive bottling operations off the balance sheet. All the profit comes from concentrate in Pepsi side anyway. COBOs aren't making money. This will allow PEP to trade at significantly higher P/Es. Look at KO which (not at the moment in this market) usually trades at a 50 P/E. PEP on the other hand trades at 25. About half. Why? Bottling operations suck cash. 2. With a PCE ("Pepsi-Cola Entreprises") like company, there will be significant consolidation and volume growth focus. Currently, PEP can rely on concentrate business to make money and let bottlers lose money. I'm not suggesting that it is their intent to lose money in the bottling business, but because concentrate is so profitable, they can live with this. With PCE, they no longer have this option. They must grow volume. CSD business is about velocity: huge volume turning over as fast as possible. That's the only way to make a buck. PCE will rapidly consolidate North America and as well as venture out into international. A fierce battle (even more so than the almost unbearable battling occurring right now) will ensue between PCE and CCE driving pricing down even further. What does this do for PEP? More concentrate sales. Another plus. 3. Tropicana acquisition. Tropicana is a highly successful juice company with very attractive growth potential. Price paid wasn't too high either. Where is Tropicana just starting to move their business? Into single serve. PepsiCo is a master at this. Their selling and delivery system is perhaps the most superior operation of any business. They know their customers, they know how to merchandise, they know the single serve business. Tropicana will benefit significantly from this. I could go on. But that outlines some significant up-side for PEP. I will look for PEP to be $45.00 by April/99.

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