PepsiCo: No Change to Strategic Direction or Capital Allocation With New CFO Appointment

We plan to maintain our $180 fair value estimate and our Exemplary capital allocation rating for wide-moat PepsiCo PEP after the firm announced the appointment of company insider Jamie Caulfield as the new CFO. Hugh Johnston, the former CFO and a 36-year company veteran, is leaving to take the CFO role at wide-moat Disney.

While Johnston deserves credit for the steady profit growth and solid returns profile at PepsiCo since he took the top finance job in 2010, we expect the firm’s strategic directions and capital allocation priorities will remain in place and its finance functions are in capable hands as the transition takes effect. Caulfield, who was most recently the CFO of PepsiCo Foods North America, has a solid track record overseeing strategy, mergers and acquisitions, and investor relations in the core business segments of Frito-Lay snacks and North America beverage in his 30-year-plus tenure at the firm. As he teams up with well-regarded CEO Ramon Laguarta, we expect PepsiCo to continue investing heavily in innovation and marketing in snacks and beverages to deepen consumer connections and satisfy their evolving preferences as well as their health and wellness needs. We see no need to change our 10-year projections for mid-single-digit sales growth and high-single-digit EPS expansion and maintain our expectation that returns on invested capital (including goodwill) will exceed our assumed weighted average cost of capital (7.1%) for more than 20 years. Shares look undervalued, trading at a 7% discount to our intrinsic valuation.