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PepsiCo Inc PEP

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Morningstar’s Analysis

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Not Much to Dislike in Pepsi’s Q1; Comps Remain Tough, but Enough Portfolio Optionality for Growth

Analyst Note

| Nicholas Johnson, CFA |

With headline performance in 2020 that belied the disruption across the broader economy, investors were seemingly less enamored with wide-moat PepsiCo’s value proposition heading into its first-quarter earnings print (as shares have been under pressure in recent months). Still, the firm continued its streak of impressive performance (with top- and bottom-line results ahead of FactSet consensus), dispelling--at least for now--the notion that its growth will be challenged in 2021. To be sure, comps will be toughest in the quarters ahead, but we expect the diversification in the business to allow the firm to maintain its growth algorithm irrespective of how consumer behavior evolves throughout the year. We don’t plan to materially change our $145 fair value estimate outside of time value adjustments, and while current trading levels no longer present a compelling margin of safety, we’d be happy buyers on any further pullbacks.

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Company Profile

Business Description

PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The firm segments its operations into five primary geographies, with North America (comprising Frito-Lay North America, Quaker Foods North America, and North America beverages) constituting over 60% of consolidated revenue.

700 Anderson Hill Road
Purchase, NY, 10577
T +1 914 253-2000
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 25, 2021
Stock Type Classic Growth
Employees 291,000