Case Scenario:
Pepsico, Inc is a global snack and beverage company operating in nearly 200 countries. It is organized in to four divisions. Frito-lay north America PepsiCo beverage North America, PepsiCo international and Quaker foods Products include convenience snacks, sweet and grain based carbonated and noncarbonated drinks and foods. On October1, 2004 Analysts' Forecasts and Valuation: Pepsi Co and Coca Cola PepsiCo traded at 49.80 per share with a forward p/e of 21.6 analyst were forecasting per-shared earnings of 2.31$ for fiscal year ending December 31, 2004, and 2.56 for 2005. the indicated dividend for 2004 was 0.98 per shared. The street was using 9 percent as a required rate of return for PepsiCo equity. The coca-cola company (ko) also operates in over 200 countries world wide and competes intensively with PepsiCo in the market for carbonated and noncarbonated beverages casting $1.99 in earning per shares for fiscal year ending December 31, 2004 and 2.10$ for 2005. The indicated dividend per share was $1.00. The equity is considered to have the same required return as PepsiCo.
1) For both PepsiCo and coke, the earnings per share that the market was implicitly forecasting for 2006, 2007 and 2008.
2) Analyst was forecasting a five-year annual growth rate in earnings per share of 11 percent for PepsiCo and 8 percent per coke. Compare these growth rates with those that were implied by the market prices for the firm's shares at the time.
3) If the forecast is that both firms will maintain their percentage current net profit margins (earning/sales) in the future what is the forecast of the sales growth rates for 2006, 2007, and 2008 that was implicit in the current shares prices for the two firms?