PepsiCo Inc. (PEP - Free Report) looks prim on its sound fundamentals and growth endeavors. The Purchase, NY-based company has been benefiting primarily from its complementary snacking and beverage businesses as well as ongoing investments to strengthen business, product innovation, robust pricing and cost-saving efforts. Smooth execution of these initiatives is likely to keep the company’s dynamism going in 2020.
Moreover, the Zacks Consensus Estimate for PepsiCo’s top and bottom lines for 2020 indicates improvements of 4.3% and 8%, respectively, from the year-ago reported figures. Additionally, the company’s long-term earnings growth rate of 7% reflects its inherent strength.
Shares of soft drink and snack maker have advanced as much as 23.2% year to date, outpacing the industry’s growth of 14.3%. Further, this Zacks Rank #3 (Hold) stock has comfortably outperformed the Consumer Staples sector’s rally of 19%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Endeavors to Drive Stock Momentum
PepsiCo’s better pricing, strength in product and geographic portfolios, product innovation, and progress on productivity targets have been supporting its strong position in the beverage industry. The company is committed to driving greater efficiency and effectiveness by reducing costs and plowing back these savings to develop scale and core capabilities. It expects to achieve the productivity savings goal of at least $1 billion annually through 2023 on restructuring actions.
Further, PepsiCo has the competitive advantage of selling both snacks and beverages compared with its beverage peers like Coca-Cola (KO - Free Report) , Monster Beverage (MNST - Free Report) and Keurig Dr Pepper (KDP - Free Report) . Notably, the company holds the number one position in the global snacks market, with popular brands like Doritos, Cheetos and Lay’s. Just over half of PepsiCo's sales come from snacks, while the remainder is contributed by beverages. The company’s strong and growing snacks business has largely offset its sluggish beverage business in the past several quarters.
Notably, the Frito-Lay North American snacks business is keen on growing value share in salty, savory and macro snack categories. Investments in innovation, marketing, consumer insights and manufacturing capabilities in the segment have led to strong revenue growth for its mainstream brands like Doritos, Cheetos, Ruffles and Fritos. Additionally, the company aims to enhance the snacks portfolio through the introduction of Smart50 popcorn, within the Smartfood brand.
Moreover, the recent deal to buy BFY Brands, the maker of PopCorners snacks, highlights PepsiCo's intention of including more nutritious options in Frito-Lay's snacking portfolio. BFY Brands offers unique products, with great taste and ingredients. Additionally, BFY Brands’ production capabilities will likely support growth of PepsiCo’s existing, more-nutritious snack brands. The addition of value brands to the company’s snacking business should keep driving higher revenues.
Also, PepsiCo’s strong foothold in international markets, particularly emerging and developing markets, reflects its growth potential. Notably, the company generates significant part of its revenues outside the United States (38% of 2018 net revenues). Expansion efforts in developing/emerging markets like Russia, Mexico, China, India, Brazil and Africa through tailored distribution models and locally relevant innovation and value-added product offerings have been driving the top line.
The above-mentioned factors suggests that there are plenty of reasons to be optimistic about the stock going into 2020.
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