PepsiCo, Inc. (PEP) Shares Could Double

Peltz admits that the soda business is in secular decline, but he believes that PepsiCo’s beverage unit would have value if it was run primarily to return as much cash as possible to shareholders.

Of course, as I’ve written previously, that sort of thinking does not bode well for Coke’s stock. Unlike Pepsi, Coke is primarily dependent on its soda. As soda consumption seems likely to fall (brought on by the push to fight obesity as well as the organic movement) The Coca-Cola Company (NYSE:KO)’s business is in danger.

Granted, Coke still yields a fairly solid 2.7% dividend and gets more than half of its revenues from overseas, but if you aren’t a believer in the soda industry, it’s hard to be bullish on a soda company.

Investing in PepsiCo and Mondelez

Peltz has a long history of pushing companies into action. Given that he has large stakes in both Pepsi and Mondelez, there’s a fair chance that something might happen, although Peltz’s idealistic scenario should not be accepted as a given.

The more conservative play would be to buy PepsiCo stock alone. Schwartzberg thinks there’s evidence that, even without Peltz’s pushing, Pepsi could be about to split itself up into two companies anyway. That would create significant shareholder value on its own, by disentangling two companies growing at different rates.

Buying into Mondelez is a much more aggressive play, with limited upside. Even if Pepsi did buy the company, Peltz thinks a fair price would be around $35. That’s a premium of less than 20%, which might not be worth the risk if no deal takes place.

At any rate, investors interested in these two companies should be aware that acquisitions and spin-offs of some sort could be coming.

The article PepsiCo Shares Could Double originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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