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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (44267)	9/8/2011 10:27:04 AM
From: Spekulatius	1 Recommendation Respond to of 78520

re PEP - the stagflation comment was from the Back to school 9/7 presentation transcript available on PEP website. it was not the focus of the presentation and was not even mentioned on the slides. It is still a meaningful comment. PEP does not look as cheap to me - they now some of their bottlers and have now ~3.2B$ in Capex annually and ~900M$ in interest expense. Cash from Operations is about 9B$ in 2010. The profits from the bottling units do not cover the increased interest expenses and Capex unless they can show synergies, which I think analyst are already projecting in future earning estimates. However, the bottling unit is more affected by increased inflation of raw material and energy imo than the core PEP and I believe these synergies not a sure thing or may be eaten up by increased costs. Also note that the credit rating was downgrade subsequent the acquisition of the bottling units. For me, it does not look like PEP is a buy yet, given that they trade at ~10x EBITDA and that 40% of their cash flow goes into Capex and interest payments.