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PepsiCo Inc PEP

Morningstar Rating
$169.60 +1.35 (0.80%)
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Company Report

PepsiCo Earnings: Innovation and Marketing to Drive Volume Expansion, but Pricing Should Normalize

We plan to trim our $180 fair value estimate for wide-moat PepsiCo by a low-single-digit percentage after absorbing its mixed 2023 results and a cautious 2024 outlook. Sales were up 6%, missing our 8% estimate on Quaker recalls and currency headwinds in the fourth quarter, but adjusted EPS expansion (12%) was head of our assumption (11%) on higher-than-expected productivity savings of $1 billion. For 2024, we now expect a lower growth trajectory as we factor in a normalized price increases of 2%-3% in beverages and snacks, modest volume expansion on product launches and refreshes, and ongoing high investment needs in marketing and innovation to assert Pepsi's value-proposition amid a softening consumer backdrop. Our 10-year forecasts for 5% sales CAGR and 16% average operating margins remain in place, and we view shares as slightly undervalued.

Price vs Fair Value

PEP is trading at a 6% discount.
Price
$169.60
Fair Value
$181.00
Uncertainty
Low
1-Star Price
$134.00
5-Star Price
$385.00
Economic Moat
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Capital Allocation
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Bulls Say, Bears Say

Bulls

Demographic and lifestyle shifts could further fuel snack consumption globally beyond our expectations.

Bears

Shifting consumer preference to healthier snacks and beverages may impede the firm’s ability to pass on higher costs in price increases thus weighing on margins and returns.

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News

Trading Information

Previous Close Price
$168.25
Day Range
$167.80170.25
52-Week Range
$155.83196.88
Bid/Ask
$169.40 / $169.45
Market Cap
$233.10 Bil
Volume/Avg
6.4 Mil / 5.5 Mil

Key Statistics

Price/Earnings (Normalized)
21.98
Price/Sales
2.53
Dividend Yield (Trailing)
2.92%
Dividend Yield (Forward)
2.92%
Total Yield
3.34%

Company Profile

PepsiCo is a global leader in snacks and beverages, owning well-known household brands including Pepsi, Mountain Dew, Gatorade, Lay’s, Cheetos, and Doritos, among others. The company dominates the global savory snacks market and also ranks as the second-largest beverage provider in the world (behind Coca-Cola) with diversified exposure to carbonated soft drinks, or CSD, as well as water, sports, and energy offerings. Convenience foods account for approximately 55% of its total revenue, with beverages making up the rest. Pepsi owns the bulk of its manufacturing and distribution capacity in the United States and overseas. International markets make up 40% of total sales and one third of operating profits.
Sector
Consumer Defensive
Industry
Beverages - Non-Alcoholic
Stock Style Box
Large Core
Total Number of Employees
318,000

Competitors

Valuation

Metric
PEP
KDP
GIS
Price/Earnings (Normalized)
21.9817.8714.08
Price/Book Value
12.441.713.78
Price/Sales
2.532.981.83
Price/Cash Flow
16.8114.7611.47
Price/Earnings
PEP
KDP
GIS

Financial Strength

Metric
PEP
KDP
GIS
Quick Ratio
0.660.200.30
Current Ratio
0.850.380.64
Interest Coverage
14.946.567.71
Quick Ratio
PEP
KDP
GIS

Profitability

Metric
PEP
KDP
GIS
Return on Assets (Normalized)
10.94%4.86%8.39%
Return on Equity (Normalized)
59.05%9.95%26.03%
Return on Invested Capital (Normalized)
18.39%7.37%13.30%
Return on Assets
PEP
KDP
GIS
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Beverages - Non-Alcoholic Industry Comparables

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Name
Morningstar Rating for Stocks
Economic Moat
Market Cap
KO
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NNFSF
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MNST
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KDP
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CCEP
Coca-Cola Europacific Partners PLCDjfczm$31.1 Bil
COCSF
Coca-Cola Femsa SAB de CV Series LCwfv$20.6 Bil
KOF
Coca-Cola Femsa SAB de CV ADRHfzd$20.6 Bil
CELH
Celsius Holdings IncTdm$14.8 Bil
PRMW
Primo Water CorpPgxnt$2.5 Bil

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