Pepsi Bottling Upgraded to a Buy

Pepsi Bottling Group, Inc. (PBG - Analyst Report) continues to execute well in a difficult soft drink environment. Contrary to competitors, volumes and net revenues are growing in every geographic region. The lackluster carbonated soft drinks (CSD) environment in North America is being addressed with a robust pipeline of new products and new initiatives in the refreshment and hydration categories. With the stock trading in the low-end of the historical valuation range, the stock is upgraded to Buy.

PBG’s management is highly motivated and focused on the efficient manufacture and distribution of Pepsi-Cola products. Management’s execution of business strategies has been superior to that of other major bottlers. While net revenue per case has been strong in the U.S., the company is expanding in higher growth geographies like Russia.

The company’s stock has traded in a wide P/E multiple range of 12 to 27 over the last five years. However, during times of low single-digit volume growth, the P/E range has been between 12 and 19. At the current P/E of 14.2, the stock is attractive, despite near-term weakness in North America.

Significant upside potential in Pepsi Bottling Group’s stock is expected when CSD volumes, possibly by unseasonably warm weather in 2008 after an unseasonably cool 2007, increase. The target price is based on a 16 P/E on trailing 12 month earnings; therefore, the target price is $35.25.

Read the full analyst report on PBG