Donald Yacktman, Yacktman Asset Mgmt., and Mark Swartzberg, Stifel Nicolaus, shed insight on Pepsi’s 9,000 jobs cuts.
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What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
brawl of the day. we take the gloves off for pepsico, the largest snack food maker. fourth quarter net income up 4%, revenue up 11% for the quarter. company also held an analysts day in n company also held an analysts day in new york today. among the biggest announcements, the company will cut nearly 9,000 jobs, pumping more money into advertising in the pepsi and mountain dew brands. the ceo appeared on cnbc to address some calls for the snack food business from the beverage business. our estimate is that the synergies from these two businesses being together in the range of $800 million to $1 billion. and the cost of splitting them is enormous, and will create untold disruption. take a look at the stock trading lower on the session, about 3.5% lower. it has been relatively flat over the last year. should you be a buyer or seller of this stock. in the bullish corner today is president and chief investment officer of yakman asset development. good to see you gentlemen. thanks very much for joining us. nice to be here. donald, you like pepsico so much, you increased your holdings in the company by 29%. what makes you so bullish in the stock? remember, we’ve had a lot of increased assets. i would put this in terms of time horizon. a long-term investor will be happy to see the opportunity to buy a great business at a lower price. a short-term speculator will probably view this as a great opportunity to short it or not hold it, or not buy it. but what — because of the short-term problems. but why do you think this stock goes higher over the mid or longer term? you took your holding up in it. what are you seeing that the shorts aren’t? we buy companies based on very long-term horizon times. we buy risk adjusted forward rates of return. this company has a great business model. high return on assets, growth and just a great future return. i would view this as like a aaa bond, and when you can get a aaa bond like this with a yield above 30-year treasuries, i think this is a great buy. mark, you were an the analysts meeting today. why do you have a hold on the stock here? i agree with the set of framework donald is using, but i would point out returns on capital have gone down for several years now for pepsi. 2012 will be yet another year of those returns going down. i would describe it as early at best to be buying this stock. we have a hold on it. we think it’s a fairly valued stock. in terms of our concerns, i think our number one concern is what i just mentioned, returns going down again. and so we have questions about management’s discipline in allocating capital. they say we should look for returns to start going up next year. we don’t think that this time next year we’ll be talking about them going down in ’13. but we have this multi-year pattern in capital going down. that’s generally not a good basis for seeing a multiple expand which we think is going to be essential. it’s at $64.35. what do you think the best price i’m going to be able to get it at in the next couple of years? how much lower can this stock go? i think we’re probably looking at risk — obviously making assumptions about the market, maybe 5% down side risk. up side risk is similar if you’re a 12-month type investor. donald, one area you think the company needs to improve is the refinement of the brand and productivity. tell me about that. i wouldn’t give the management an a on their report card. i just think that this is a great business. it generates a lot of excess cash. and if the company were to use the decline in stock price to buy back shares as an example, given where interest rates are, that would be a great opportunity to improve all of the basic numbers. and donald, real quick, how much higher do you think this stock can go? depends on the time horizon. i would say if you’re — we look in terms of a ten-year time frame. and i wouldn’t be surprised to see between the dividends, and the price appreciation to make 150% over ten years. all right. we’ll leave it there. gentlemen, good to have you on the program. thanks so much.