Recently, the company entered into a multi-year sponsorship agreement with Manchester United in Asia. This will allow PepsiCo, Inc. (NYSE:PEP) to use the football club’s label on its products. The club has a huge fan base of greater than 38 million in this region. This agreement is expected to open up new growth opportunities and expand its outreach in the Asian continent. This is likely to boost the company’s profits immensely.
Frito-Lay and Activision have joined forces for the promotion of Skylanders Giants, where fans can score exclusive, limited-edition Skylanders Giants Sidekicks figures by buying specially marked Frito-Lay 20-count variety packs of snacks and entering the in-pack code online. Skylanders was one of the best selling games of 2012. This agreement is likely to boost the demand for Frito-Lay quite significantly.
The company expects to return approximately $6.4 billion to shareholders through dividends and share repurchases in 2013.
Conclusion
Although Post Holdings Inc (NYSE:POST) has made a sensible acquisition, it is less likely to turn the tables for the company as it is already overvalued. Post’s P/E (ttm) stands at 41.2 times as compared to the industry average of 20.1 times. Also, the company has been registering a very low return for its shareholders representing an inefficient management of funds. The company’s ROE (ttm) and ROA (ttm) stand at 2.8% and 1.3% as compared to the industry average of 21.6% and 7.4%, respectively. Hence, I think your money might be better invested elsewhere.
Though Kellogg has employed a high amount of leverage, it is utilizing it quite effectively to generate returns more than the cost of funds. It is evident from the company’s high ROE (ttm) of 38% as compared to the industry average of 21.6%. The company provides its shareholders a regular stream of dividend income and is expected to increase dividends by 2.3% in 2013. In my opinion, this stock could be a good addition to your portfolio.
PepsiCo, Inc. (NYSE:PEP) is a financially sound company with multiple brands under its umbrella. Considering its recent agreements, the company is likely to see a phenomenal boost in the demand for its products. Also, the company has been providing its shareholders with a constantly rising dividend income and is expected to raise dividends by 1.56% in 2013. Though this might seem to be a small increment, the company is generating a high ROE (ttm) of 30.7% compared to the industry average of 26.2%. A major chunk of the return can be expected in the form of price appreciation. Hence, this stock should also be bought in my opinion. Have a look, you might also come to the same conclusion.
The article Post Will Not Stabilize Despite Its Sensible Acquisition originally appeared on Fool.com and is written by Awais Iqbal.
Awais Iqbal has no position in any stocks mentioned. The Motley Fool recommends PepsiCo (NYSE:PEP). The Motley Fool owns shares of PepsiCo.
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