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Is PEP's 1% Gain in a Month Enough to Justify Holding the Stock?
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PepsiCo Inc. (PEP - Free Report) stock has shown a slow progression on the bourses, with its shares rising just 1% in the past month. The company’s third-quarter 2024 results released on Oct. 8, 2024, also failed to impress investors as its revenue continued to reflect the impacts of subdued category demand in its convenient food business and the effects of a product recall in the Quaker Foods North America (“QFNA”) segment.
However, shares of the beverage and snacking big wig outperformed the broader industry and the Zacks Consumer Staples sector’s declines of 3.2% and 3.1%, respectively, in the past month. The PEP stock surpassed the S&P 500’s rally of 0.8% in the same period.
PepsiCo’s performance is notably stronger than its close competitor The Coca-Cola Company (KO - Free Report) , which has declined 6.8% in a month. PEP has surpassed other industry peers, including Keurig Dr Pepper (KDP - Free Report) and Fomento Economico Mexicano’s (FMX - Free Report) 7.7% and 1.9% declines, respectively.
PepsiCo’s One-Month Stock Performance
Image Source: Zacks Investment Research
At the current share price of $171.79, PEP’s stock price reflects an 8.7% premium to the company’s recent 52-week low of $158.03. Meanwhile, PepsiCo’s stock price shows a 6.3% discount from its 52-week high of $183.41.
PEP’s price performance echoes mixed sentiments among investors. This is somewhat evident from the stock trading below the 50-day moving average but above the 200-day moving average.
PEP’s 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Let us explore the reasons behind the company’s steady but strong movement on the bourses.
Factors Highlighting PEP’s Inherent Strength
PepsiCo is well-positioned to benefit from strength in core categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities and flexible distribution systems. Price gains across its businesses have been a key growth driver.
PEP’s productivity and cost-management efforts contribute to its positive outlook, with profitability supported by cost controls and strategic investments to boost market competitiveness. In 2024, the company plans to heighten its focus on comprehensive cost management to increase productivity, offset cost inflation, and invest in brand growth, innovation and channel expansion.
PepsiCo's international business has been a key driver, delivering substantial volume and organic revenue growth. Developing and emerging markets offer significant growth potential due to lower per-capita consumption. In the third quarter of 2024, PEP's international segment posted strong year-over-year volume and organic revenue growth of 4%, with a 60-basis-point increase in the core operating profit margin.
For the remainder of the year, PepsiCo plans to continue investing in commercial activities and brand support to drive consumer demand, backed by productivity initiatives across the organization. It also expects to capitalize on strong category growth in the developing and emerging markets, which is likely to boost the performance of its international business.
What’s Keeping Investors Skeptical About PEP?
While PepsiCo’s inherent strengths show promise, investors continue to be skeptical about the ongoing headwinds in the company. The company’s revenue performance in the third quarter reflected headwinds related to weak category demand in its North America convenient food business, ongoing recall-related issues at QFNA and business disruptions caused by escalating geopolitical tensions in some international markets.
PEP posted a year-over-year revenue decline of 0.6% in the second quarter of 2024, much below the 6.7% revenue rise in the year-ago quarter. Additionally, revenues reflected a sharp slowdown from 0.8% and 2.3% growth in the second and first quarters of 2024, respectively. The company has struggled with reduced consumer demand in its key North America markets and product recalls in the QFNA segment.
The company’s troubles in the North America markets are partially attributed to increased pricing in response to rising inflation in the past few years, which has led to reduced volumes as consumers adjust their spending habits amid economic pressures. Additionally, PEP is still witnessing headwinds due to product recalls in the QFNA segment related to contamination issues such as Salmonella in various cereal and snack items.
Mixed Outlook for PEP
Due to muted performances across categories, soft year-to-date results and a cautious fourth-quarter outlook, PepsiCo has revised its 2024 sales forecast downward. The company anticipates year-over-year organic revenue growth in the low-single digits, down from its previous estimate of 4%.
PepsiCo reaffirmed its projection for core constant-currency EPS growth of at least 8% from last year’s reported level, aiming for a core EPS of at least $8.15 in 2024, suggesting a 7% increase over the core EPS of $7.62 reported in 2023.
Stable Estimate Trend for PEP
The Zacks Consensus Estimate for PepsiCo's 2024 EPS was unchanged in the last 30 days, indicating analysts’ expectations for the company's earnings are steady. The stable estimate revision trend suggests no significant developments or changes in the company's outlook to prompt analysts to adjust their earnings forecasts. The consensus estimate for 2025 EPS has moved down by a penny in the past seven days.
For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 0.8% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 3.4% and 5.9% year-over-year increases, respectively.
Image Source: Zacks Investment Research
Does PEP’s Valuation Discount Signal a Buying Opportunity?
PepsiCo is currently trading at a forward 12-month P/E ratio of 20.09X, below the industry average of 20.81X and the S&P 500’s average of 22.05X.
Although PEP’s stock valuation is currently lower than its industry peers, this gap might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting a straightforward investment opportunity.
Image Source: Zacks Investment Research
How to Approach Investing in PEP Stock?
PepsiCo demonstrates strong long-term growth potential, backed by its position in the industry, its holistic cost-management initiatives, strong international business and the execution of development strategies. However, near-term challenges related to challenges in its North America operations and the broader market environment suggest caution before making any investment decision. Recent market data suggests bleak prospects for near-term recovery in its North America business.
PEP’s discounted valuation compared with its peers offers compelling value at these levels. However, its muted estimate revision trend calls for a cautious approach for new investors. Therefore, investors should examine the developments and their investment acumen before getting on board. If you already own the Zacks Rank #3 (Hold) stock, maintaining your position can be beneficial, given its long-term growth prospects.
Image: Bigstock
Is PEP's 1% Gain in a Month Enough to Justify Holding the Stock?
PepsiCo Inc. (PEP - Free Report) stock has shown a slow progression on the bourses, with its shares rising just 1% in the past month. The company’s third-quarter 2024 results released on Oct. 8, 2024, also failed to impress investors as its revenue continued to reflect the impacts of subdued category demand in its convenient food business and the effects of a product recall in the Quaker Foods North America (“QFNA”) segment.
However, shares of the beverage and snacking big wig outperformed the broader industry and the Zacks Consumer Staples sector’s declines of 3.2% and 3.1%, respectively, in the past month. The PEP stock surpassed the S&P 500’s rally of 0.8% in the same period.
PepsiCo’s performance is notably stronger than its close competitor The Coca-Cola Company (KO - Free Report) , which has declined 6.8% in a month. PEP has surpassed other industry peers, including Keurig Dr Pepper (KDP - Free Report) and Fomento Economico Mexicano’s (FMX - Free Report) 7.7% and 1.9% declines, respectively.
PepsiCo’s One-Month Stock Performance
Image Source: Zacks Investment Research
At the current share price of $171.79, PEP’s stock price reflects an 8.7% premium to the company’s recent 52-week low of $158.03. Meanwhile, PepsiCo’s stock price shows a 6.3% discount from its 52-week high of $183.41.
PEP’s price performance echoes mixed sentiments among investors. This is somewhat evident from the stock trading below the 50-day moving average but above the 200-day moving average.
PEP’s 50 & 200-Day Moving Averages
Image Source: Zacks Investment Research
Let us explore the reasons behind the company’s steady but strong movement on the bourses.
Factors Highlighting PEP’s Inherent Strength
PepsiCo is well-positioned to benefit from strength in core categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities and flexible distribution systems. Price gains across its businesses have been a key growth driver.
PEP’s productivity and cost-management efforts contribute to its positive outlook, with profitability supported by cost controls and strategic investments to boost market competitiveness. In 2024, the company plans to heighten its focus on comprehensive cost management to increase productivity, offset cost inflation, and invest in brand growth, innovation and channel expansion.
PepsiCo's international business has been a key driver, delivering substantial volume and organic revenue growth. Developing and emerging markets offer significant growth potential due to lower per-capita consumption. In the third quarter of 2024, PEP's international segment posted strong year-over-year volume and organic revenue growth of 4%, with a 60-basis-point increase in the core operating profit margin.
For the remainder of the year, PepsiCo plans to continue investing in commercial activities and brand support to drive consumer demand, backed by productivity initiatives across the organization. It also expects to capitalize on strong category growth in the developing and emerging markets, which is likely to boost the performance of its international business.
What’s Keeping Investors Skeptical About PEP?
While PepsiCo’s inherent strengths show promise, investors continue to be skeptical about the ongoing headwinds in the company. The company’s revenue performance in the third quarter reflected headwinds related to weak category demand in its North America convenient food business, ongoing recall-related issues at QFNA and business disruptions caused by escalating geopolitical tensions in some international markets.
PEP posted a year-over-year revenue decline of 0.6% in the second quarter of 2024, much below the 6.7% revenue rise in the year-ago quarter. Additionally, revenues reflected a sharp slowdown from 0.8% and 2.3% growth in the second and first quarters of 2024, respectively. The company has struggled with reduced consumer demand in its key North America markets and product recalls in the QFNA segment.
The company’s troubles in the North America markets are partially attributed to increased pricing in response to rising inflation in the past few years, which has led to reduced volumes as consumers adjust their spending habits amid economic pressures. Additionally, PEP is still witnessing headwinds due to product recalls in the QFNA segment related to contamination issues such as Salmonella in various cereal and snack items.
Mixed Outlook for PEP
Due to muted performances across categories, soft year-to-date results and a cautious fourth-quarter outlook, PepsiCo has revised its 2024 sales forecast downward. The company anticipates year-over-year organic revenue growth in the low-single digits, down from its previous estimate of 4%.
PepsiCo reaffirmed its projection for core constant-currency EPS growth of at least 8% from last year’s reported level, aiming for a core EPS of at least $8.15 in 2024, suggesting a 7% increase over the core EPS of $7.62 reported in 2023.
Stable Estimate Trend for PEP
The Zacks Consensus Estimate for PepsiCo's 2024 EPS was unchanged in the last 30 days, indicating analysts’ expectations for the company's earnings are steady. The stable estimate revision trend suggests no significant developments or changes in the company's outlook to prompt analysts to adjust their earnings forecasts. The consensus estimate for 2025 EPS has moved down by a penny in the past seven days.
For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 0.8% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 3.4% and 5.9% year-over-year increases, respectively.
Image Source: Zacks Investment Research
Does PEP’s Valuation Discount Signal a Buying Opportunity?
PepsiCo is currently trading at a forward 12-month P/E ratio of 20.09X, below the industry average of 20.81X and the S&P 500’s average of 22.05X.
Although PEP’s stock valuation is currently lower than its industry peers, this gap might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting a straightforward investment opportunity.
Image Source: Zacks Investment Research
How to Approach Investing in PEP Stock?
PepsiCo demonstrates strong long-term growth potential, backed by its position in the industry, its holistic cost-management initiatives, strong international business and the execution of development strategies. However, near-term challenges related to challenges in its North America operations and the broader market environment suggest caution before making any investment decision. Recent market data suggests bleak prospects for near-term recovery in its North America business.
PEP’s discounted valuation compared with its peers offers compelling value at these levels. However, its muted estimate revision trend calls for a cautious approach for new investors. Therefore, investors should examine the developments and their investment acumen before getting on board. If you already own the Zacks Rank #3 (Hold) stock, maintaining your position can be beneficial, given its long-term growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.