PepsiCo, Inc.PEPNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $248.84 per share(market-calibrated)

+50.9%

Upside to Fair Value

Current

$164.91

Pure Model

$272.91

Fair Value

$248.84

Bull Case

$330.29

Bear Case

$215.63

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $272.91.

What's Driving This Ratingfor PEP

↓

CapEx normalizing toward maintenance

Historical CapEx is 5.34% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$3.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 13.58% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $20.7B (15.21% margin).

→

Moderate revenue growth

Analyst consensus projects 4.94% revenue growth, fading to 2.50% by Year 10. Revenue reaches $136.3B (vs $93.9B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 67.65% indicates efficient cash generation. FCF reaches $17.6B by Year 10 (12.88% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.42

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)6.37%

Cost of Debt

Pre-tax Cost of Debt2.27%

Tax Rate19.17%

After-tax Cost of Debt1.83%

Equity Weight (E/V)81.92%

Debt Weight (D/V)18.08%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (81.92% × 6.37%) + (18.08% × 1.83%)

= 5.55%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$98.6B	$105.3B	$112.9B	$124.1B	$136.3B
EBIT	$13.4B	$14.3B	$15.3B	$17.9B	$20.7B
Tax	$2.6B	$2.7B	$2.9B	$3.4B	$4.0B
NOPAT	$10.8B	$11.6B	$12.4B	$14.5B	$16.7B
+ Depreciation	$3.8B	$4.0B	$4.3B	$4.8B	$5.2B
- Capex	$5.3B	$5.1B	$4.9B	$4.7B	$4.1B
- Δ NWC	$464M	$368M	$622M	$534M	$332M
Free Cash Flow	$8.9B	$10.2B	$11.2B	$14.0B	$17.6B
Discount Factor	0.947	0.850	0.763	0.685	0.583
Present Value	$8.4B	$8.6B	$8.6B	$9.6B	$10.2B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$17.6B

Terminal Growth Rate2.50%

WACC5.55%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$589.6B

PV of Terminal Value$343.5B

Exit Multiple Method

Year 10 EBITDA$25.9B

Exit Multiple (EV/EBITDA)20.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$518.9B

PV of Terminal Value$302.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$92.0B

PV of Terminal Value$343.5B

Enterprise Value$435.5B

(-) Net Debt$40.7B

Equity Value$394.8B

Shares Outstanding1.4B

Price per Share$287.93

Exit Multiple Method

PV of Projected FCFs$92.0B

PV of Terminal Value$302.3B

Enterprise Value$394.3B

(-) Net Debt$40.7B

Equity Value$353.6B

Shares Outstanding1.4B

Price per Share$257.89

Pure Model Fair Value

$272.91

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.55%	$402.15	$391.77	$374.48	$358.01	$342.31
4.55%	$298.86	$326.40	$367.37	$358.01	$342.31
5.55%	$241.07	$254.75	$272.91	$298.19	$335.79
6.55%	$202.42	$210.29	$220.09	$232.66	$249.34
7.55%	$173.90	$178.84	$184.77	$192.00	$201.02

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$215.63

30.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.52

Base Case

$272.91

65.5% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.42

Bull Case

$330.29

100.3% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.35

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.94%

Year 3 Revenue Growth3.62%

Year 5 Revenue Growth5.82%

Year 7 Revenue Growth4.49%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin13.58%

Terminal EBIT Margin16.00%

Tax Rate19.17%

Historical Capex / Rev5.34%

Terminal Capex / Rev3.00%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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