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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.



) --


(PEP) - Get PepsiCo, Inc. Report

is the world's second largest carbonated soft drink manufacturer and the largest packaged foods product manufacturer. PepsiCo's beverage division competes with


(KO) - Get Coca-Cola Company Report

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in virtually all sub-segments of the beverage market. PepsiCo is best known for its namesake soft drink brand as well as its Frito Lay products (including Doritos and Cheetos).

We estimate that Pepsi brand operations constitute about 7% of the company's stock value while Frito Lay products generate a more substantial 42%. Our price estimate for PepsiCo stock is $67.28, which is slightly ahead of the current market price. The company's healthy food products or its nutrition business, which includes Gatorade, Tropicana and Quaker Foods divisions together constitute around 31% of our price estimate.

Pepsi Pushing Into Healthy Foods

We discussed in our earlier

article how Pepsi is making a push into the healthy foods market and how it can benefit from this initiative. To further this initiative the company recently completed the acquisition of Wimm-Bill-Dann, a leading Russian manufacturer of fruit juice and dairy products.

Pepsi's nutrition business accounts for around $10 billion of the company's annual revenue, that is, one-sixth of the total. However, this number will increase to around $13 billion after the takeover of Wimm-Bill-Dann. Pepsi projects the global nutrition group to be a $30 billion business by 2020. In addition to this, Russia is expected to become the new battleground for the cola wars. Coca-Cola, which acquired the Russian fruit juice maker Nidan last year, now controls around 30% of the Russian fruit-juice market. However, with its acquisition of Wimm-Bill-Dann, Pepsi will now have a 40% share.

Pepsi will also have a strong foothold in the lucrative Russian dairy market, which increased in size by 22% between 2006 and 2010, and is expected to grow by 12% in the next four years. Wimm-Bill-Dann controls around 30% of the Russian dairy markets. This acquisition will also help Pepsi to further expand into Eastern Europe and the former Soviet states.

We believe that in addition to getting into the dairy business, Pepsi's fruit juice business, shown under our Tropicana division for Pepsi, will benefit. We estimate that Tropicana's international (outside the U.S.) market share, by volume, increased from around 4.3% in 2005 to 4.5% in 2010. Going forward, we expect it to increase to around 4.8% by the end of our forecast period.

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