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PepsiCo May Like Oreos Enough to Consume Mondelez

NEW YORK ( TheStreet) -- Animated ads don't often catch my eye and my imagination but this one did and it brought back sweet childhood memories.

Now, before you watch the video of the ad and enjoy the catchy song, remember you're reading this because you want to know if PepsiCo (PEP - Get Report) and some activist investors may have dollar signs in their eyes when they also see the video.

First, I'd like to send out congratulations to the folks who manage PEP. On Wednesday shares of PEP hit a new 52-week high of $84.45, lifting PEP's market cap to well above $130 billion. Coincidentally its bigger rival, Coca-Cola (KO) also hit a 52-week high ($43.10) giving it a market cap of $191 billion.

So both these consumer goods giants are being awarded rich earnings multiples for their stock prices. PEP and KO are trading at a forward PE (one-year) of around 18 and at a generous price-to-earnings-to-growth (PEG) ratio above 2. Investors feel safe owning these beverage and food titans, period!

Let's get back to PepsiCo with its 2.7% dividend sustained by a payout ratio that, in my opinion, is on the high side (55%). Whether or not its dividend can keep growing will probably depend on how fast it can grow its revenue and Ebitda earnings per share. Take a look at this one-year chart illustrating the point.

PEP Chart PEP data by YCharts

What jumps off this chart is that revenue have been heading north while the Ebitda earnings have been plunging. The meteoric rise in PEP's share price from the Dec. 31, 2012, low of $67.39 to Wednesday's high of $84.45 is a thirst-stimulating 25.3%. Not too shabby for a stock whose price chart used to resemble the EKG of a "stiff" in the coroner's office!

So what can PEP do about its Ebitda earnings and how might it keep its trailing 12-month revenue per share numbers looking rosy? Why not buy or merge with the company that makes the world's favorite cookie -- Mondelez International (MDLZ - Get Report), the snack manufacturer spun off from Kraft (KRFT) that started 2013 with a whimper?

Shares of MDLZ are also trading for about 18 times forward earnings at around $31.40, giving it a market cap of over $56 billion. That makes MDLZ an expensive takeover target.

Now here's where the plot becomes an interesting cookie-cruncher (and a numbers-cruncher as well).
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