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PepsiCo Inc PEP

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Morningstar’s Analysis

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Economic Moat




Snack Business Well Suited for Pandemic Environment, Allowing Pepsi to Focus on Strategic Priorities

Nicholas Johnson Equity Analyst

Analyst Note

| Nicholas Johnson |

Heading into wide-moat PepsiCo’s first-quarter earnings print, with its geographic mix somewhere in the middle of the spectrum relative to Coke and Keurig Dr Pepper, it was unclear how much of a bellwether these peers’ results would be. As such, we think investors were keenly focused on: 1) the resilience of the business in the quarter and 2) whether this performance was sustainable throughout the COVID-19 onslaught. Management commentary turned out to be mixed, with stellar results (top- and bottom-line beats relative to CapIQ consensus) juxtaposed with a retraction of full-year guidance and an expectation for a low-single-digit decline in second-quarter organic sales. As we update our near-term outlook, we do not plan to change our $140 fair value estimate and see shares as fairly valued.

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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 four 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, 2020
Fiscal Year End Dec 29, 2020
Stock Type High Yield
Employees 267,000