PepsiCo’s (NYSE:PEP) latest acquisition of Mabel, a leading producer of cookies, crackers and snacks in Brazil, confirms that the company is keen to grow its business in Latin America. Mabel has a portfolio of some renowned brands including Mabel, Elbi’s, Kelly and Skiny. We believe this acquisition would bring in synergies as Mabel’s brands complement Pepsi’s existing food and beverage portfolio, thereby, creating new opportunities for growth. In September this year, it acquired Dilexis, a traditional manufacturer of cookies and crackers in Argentina. PepsiCo competes with companies like Coca-Cola (NYSE: KO) and Dr. Pepper Snapple Group (NYSE:DPS).

Our price estimate for PepsiCo is $71, implying roughly a 10% upside to the current market price.

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Latin American Initiatives

Pepsi looks keen to expand in Latin America. It is trying to build its presence in the region through acquisitions, partnerships and several other mediums. In last couple of months, it has already undertaken two acquisitions in the region. A brief discussion follows:

In September, Pepsi opened a new manufacturing plant, located in North Eastern Brazil.
In April 2011, it signed a multi-year agreement with Burger King to be the exclusive soft drink supplier in its restaurants throughout the Latin America and Caribbean region.
In 2010, it announced plans to invest $3 million over the next three years to create the Agricultural Development Center of Peru. This center will focus on advanced farming techniques for potatoes and other tubers and roots that are used as ingredients in Pepsi’s products.^[1]

We believe Pepsi is banking on the Latin American region for future growth. It looks keen to expand its footprint in the region. Its recent initiatives do confirm our assertion. With growth slowing in developed economies, we believe these emerging economies hold future growth opportunities for beverage behemoths like Coca-Cola and Pepsi.

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