PepsiCo (PEP) Believes Impact of Weight-Reducing Drugs Has Been Negligible

Stock (Symbol)

PepsiCo (PEP)

Stock Price

$161

Sector

Data is as of

Expected to Report

Company Description

PepsiCo, Inc. is a beverage and convenient food company.

• Frito-Lay North America, which includes its food businesses in the United States and Canada;
• Quaker Foods North America, which includes its food businesses, such as cereal, rice, pasta and other branded food, in the United States and Canada;
• PepsiCo Beverages North America, which includes its beverage businesses in the United States and Canada;
• Latin America, which includes its beverage and convenient food businesses in Latin America;
• Europe, which includes its beverage and convenient food businesses in Europe;
• Africa, Middle East and South Asia (AMESA), which includes all of its beverage and convenient food businesses in Africa, the Middle East and South Asia;
• Asia Pacific, Australia and New Zealand and China Region (APAC), which includes all of its beverage and convenient food businesses in Asia Pacific, Australia and New Zealand, and China region.

Source: Refinitiv

Sharek’s Take

PepsiCo (PEP) continues to deliver strong results, as the company

Founded in 1919, PepsiCo is one of the world’s largest food and beverage companies with more than $70 billion in annual sales. PepsiCo’s great worldwide brands include Pepsi, Frito-Lay, Tropicana, Quaker, and Gatorade, with each generating more than $1 billion in annual sales. While the company serves customers in more than 200 countries and territories worldwide, greater than 60% of its revenue comes from North America. Most of the company brands occupy the #1 and #2 spots in their respective categories. PEP just invested $550 million in Celsius Energy (CELH), which gives PepsiCo a new set of energy drinks to distribute. The investment is in preferred stock that will pay a 5% annual dividend and can convert into regular stock down the road. This gives PEP 8.5% of Celsius. PEP bought the Rockstar energy brands in 2020.Here are the revenue divisions of PEP as of last qtr:

• Frito-Lay North America:
  • +7% sales growth; 0% snack volume growth.
  • Trademark brands including Doritos, Cheetos, and Ruffles delivered strong sales growth.
  • Smaller brands such as PopCorners, SunCHips and Miss Vickie’s delivered growth >10%.
  • PEP gained market share in the savory snack category last quarter.
  • New flavors including:
    • Doritos Spicy Pineapple
    • Funyuns Spicy Queso
    • Ruffles Flamin’ Hot Queso
    • Smartfood Doritos Nacho Cheese Flavored Popcorn
    • Lays Cheetos Cheese
    • Mini Chips in Pringles-style canisters.
• Quaker Foods North America:
  • +5% sales growth; +1% snack volume growth.
  • Organic revenue growth was 16% in the year ago period so comparisons were tough.
  • PEP gained market share in pancake mix and syrup, grits, and light snacks.
  • Double-digit sales growth in lite snacks, grains, and pancake syrups.
  • New brands include:
    • Fruit Fusion Instant Quaker Oatmeal
    • Cap’n Crunch Oops! All Berries Instant Oatmeal
    • Chewy Chocolate Chip Cookie Dough Granola Bars.
    • Launched Quarer On-The-Go Snack Mix and Quaker Chocolatey Favorits Snack Mix.
• PepsiCo Beverages North America:
  • +8% sales growth; -6% beverage volume growth.
  • Gatorade achieved double-digit sales growth.
  • bubly delivered high single-digit sales growth.
  • Pepsi and LifeWTR had mid single-digit sales growth.
  • Relaunced BAJA BLAST franchise, including a new MTN Dew Energy Baja Blast.
  • Launched Gatorade Water.
• Latin America:
  • +21% sales growth; -5% snack volume growth; +5% beverage volume growth.
  • Mexico and Brazil delivered double-digit organic revenue growth.
• Europe:
  • +2% sales growth; +2% snack volume growth; 0% beverage volume growth.
• Africa, Middle East, and South Asia:
  • -6% sales growth; -3% snack volume growth; +3% beverage volume growth.
  • Pakistan and Egypt delivered double-digit organic revenue growth.
• Asia Pacific, Australia, New Zealand, and China Region:
  • +4% sales growth; -1% snack volume growth; +1% beverage volume growth.
  • Philippines delivered double-digit organic revenue growth.

PepsiCo’s one of the safest stocks in the world, with a Standard & Poors credit rating of A+. Currently, the Estimated Long Term Growth Rate is 9% per year and if we add in the dividend yield of 3%, that will push the total estimated return to 12%. PepsiCo is a S&P Dividend Aristocrat and has raised the payout each year since 1973. 2023 is the 51st year of dividend increases. Management also buys back stock to boost EPS. In 2022, management bought back $1.5 billion in stock and paid shareholders $6.2 billion in cash dividends. PEP is a core holding in the Conservative Growth Portfolio. 

One Year Chart

PEP is in a slump, as it fell to a one-year low of $158. Other conservative stocks have been hit hard during this period as well, including McDonald’s, and J&J.

This stock has a 20 P/E, which is below my Fair Value of 24 making the stock undervalued.

The Est. LTG is 9%. In past years, this was considered to be a 5-7% grower. But management has been effective in improving efficiency.

Earnings Table

Revenue growth reflects PEP’s diversified portfolio, broad geographic reach, strong omnichannel presence, and productivity initiatives. In North America, Frito-Lay and PepsiCo Beverages benefited from double-digit increase in ad and marketing spend. Internationally, revenue growth was led by the Africa, Middle East, and South Asia regions, particularly in Pakistan and Egypt which delivered double-digit organic revenue growth. Outside these regions, the Philippines, Turkey, Mexico, Brazil, and Poland also delivered double-digit growth.

Annual Profit Estimates increased across the board. Management expects 2023 organic revenue growth of 10%.

Qtrly Profit Estimates for the next four qtrs are 3%, 8%, 8%, and 6%. It looks like profit growht might be in the single digits again next quarter. Perhaps the company can get back over 10% after that. Analysts think PEP revenue will grow 2% next quarter.

Fair Value

This stock has a Fair Value of $196 for 2023, which is around 21% above where the stock is now. My 2024 Fair Value is $211, which equates to 31% upside. Note the company also pays a juicy 3% dividend.

These shares are quite the value.

Bottom Line

Pepsico (PEP) has proven to be a steady-grower the past decade, even though profits haven’t always been. This chart is beautiful.

PepsiCo’s gotten some selling pressure as investors feel snack sales might simmer down. And looking at the numbers in this report, it does seem like growth is slowing. Revenue growth is expected to be just 2% net quarter. But the stock has fallen too much, and is now a bargain in my eyes.

PEP moves up from 22nd to 19th in the Conservative Portfolio Power Rankings.

Power Rankings

N/A

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

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