Stock of the Week: Pepsico

Weekly spotlight: news, opportunities and insights at a glance!

Jan 16, 2025

After an analysis of Evolution last week, it is the turn of Pepsico to enter the “Stock of the Week” section. Every week, I analyze a stock, sharing its key metrics, recent news, my view on the company, technical analysis, and the opportunities it presents.

Why Pepsico? Because with a 25% drop from its ATH, the stock is taking a big hit and this could be an opportunity.

By the way, a lot of customer staples have almost the same configuration.

Let me know what you think of Pepsico in the comments!

One-pager

The stock at a glance!

Last earnings report

As discussed, we clearly see the challenges the company is currently facing. US remains the main region.

As a sign of slower growth than expected, the inventory (in days) went from 42d at the end of 2021 to 49d today.

Partnership might continue to develop like the one with Celsius

Analysts’ recommendations

Oct, 25. DNB. Buy. 1,550SEK —> 1,570SEK
Dec, 12. Deutsche Bank. Hold —> Buy. $179 —> $184
Dec, 19. Jefferies. Buy. $198 —> $189
Dec, 20. BNP. Hold. $180 —> $162
Jan, 07. Wells Fargo. Hold. $170 —> $155
Jan 07. Piper Sandler. Buy. $171 (new coverage)
Jan 08. Goldman Sachs. Buy. $192 —> $189

My analysis

The slowing growth is understandable given the size and maturity of the company. Targeting a long-term growth potential of 2.5% to 3% seems reasonable. On the one hand, younger generations continue to consume significant amounts of soda and snacks, providing a strong tailwind for growth. On the other hand, the increasing demand for healthier food options could act as a headwind, tempering this potential
Competition is intensifying, and PepsiCo now faces two distinct types of challengers (besides the historical challengers like Coca-Cola): competitors offering lower-cost alternatives and those targeting the premium segment of the market. Being positioned in the middle creates significant challenges, as defending its market share becomes increasingly difficult in this competitive landscape
The valuation decrease is normal considering the lowest growth potential of the company (the 2025 PE is 17x with a 10y average around 24x)
The company keeps quality features: reasonable debt, share buybacks, strong ROE, decent margin, defensive business model
The management aims for 8% EPS growth coming from revenue growth, margin increase (mainly from increasing productivity, one of the main focuses) and share buybacks
While PepsiCo may not be the most dynamic company, it could appeal to investors seeking a stable consumer staple for their portfolio and aiming for 8% yearly returns + dividends (around 11%-12% total). Its valuation appears reasonable, with buying opportunities nearby. Dividend-focused investors will find its 3.7% yield attractive. However, it will be crucial to monitor the company’s ability to reignite EPS growth and effectively defend its market share. Without these efforts, the risk of the company stagnating and facing a gradual decline becomes a genuine concern

Chart

I have defined three buying zones that I find interesting for long-term investments during pullbacks. While these zones may not be reached, I am prepared for a market (or stock) consolidation to seize long-term opportunities. For me, this approach offers a better risk/reward ratio.

Of course, this is just my opinion, and I am sharing it with you, but each investor should decide on their own investment style. With that said, here are my three buying zones for Pepsico.

Buying zone 1. $142
Buying zone 2. $129 - my favorite support
Buying zone 3. $104

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