Tag Archives: cash flow
With the market trading at a multi-year high, it may be a good time for smart investors to review their holdings and perhaps take some profits. It is also a good time to review stocks with low beta and strong cash flow to reduce the volatility. PepsiCo (PEP) surfaces when it comes to strong cash flow and low beta. However, taking a deeper look, PepsiCo’s cash flow may not be cheap with current valuation.
For 2012, PepsiCo delivered EPS directly on target. The capital spending was 4% of net revenue for 2012, below our target of 4.5%, a 20% reduction from 2011 CapEx investment level. Inventory days had decreased, and payables days had increased. Overall, the company had a healthy cash flow for 2012.
Increasing Operating Cash Flow
Excluding the pension and restructuring cash outflows, the management operating cash flow increased 20% or by more than $1.2B compared to 2011. This cash flow performance enabled the company to return $6.5B to PepsiCo shareholders through a combination of share repurchase and dividends, a 16% increase from 2011.
As for the productivity commitment, the management executed a comprehensive restructuring program and accelerated the company’s productivity efforts across the value chain. The organization is de-layered, and the efficiency is improved by reducing headcounts and rationalizing the supply chains to reduce costs and investment in fixed assets. As a result of these efforts, the company delivered in excess of $1B in productivity in 2012.
The markets have been in a rally mode since the beginning of 2013. The S&P 500 closed above 1,500 for the first time in more than five years on January 25, 2013, as strong earnings continued to boost the index. Investors’ sentiment is very bullish, and the market is driven by extreme greed. Nonetheless, intelligent investors know that too much optimism may not be a good thing, as quoted from Warren Buffett, “Be fearful when everyone is greedy. Be greedy when everyone is fearful.” The central theme of this article is not to predict the market direction, but to review a list of high quality large-cap stocks that generate strong free cash flow while continuing to grow its revenue. So, when the tide turns, investors can still count on steady cash flows from these stocks with solid fundamentals.
|Company Name (Ticker)||Revenue, ttm||Quarterly
Revenue Growth, ttm (yoy)
|Levered Free Cash Flow, ttm||Diluted
|Cisco Systems, Inc. (CSCO)||$46.68B||5.50%||$9.27B||$1.55||2.60%|
|China Mobile Ltd. (CHL)||$86.83B||6.60%||$5.26B||$4.97||3.50%|
|The Coca-Cola Company (KO)||$47.60B||0.80%||$6.42B||$1.91||2.80%|
Source: Yahoo Finance