Despite more than a 30% rise since the March lows of this year, at the current price of $136 per share, we believe PepsiCo stock (NASDAQ: PEP) is still a good opportunity for investors. PEP stock has increased from $104 to $135 off the recent bottom, less than the S&P which increased by 50% from its recent lows. Even though the stock is around 23% above the level at which it was at the end of 2017, it is still lower than its pre-Covid (February 2020) high of $147. We believe that PEP’s stock could rise over 10% from its current level, driven by expectations of rising demand and easing of supply constraints following the gradual lifting of lockdowns and benefits from recent acquisitions. Our dashboard What Factors Drove 23% Change In PepsiCo Stock Between 2017 And Now? has the underlying numbers behind our thinking.

Some of the sharp stock price rise between 2017 and 2019 is justified by the 5.7% growth seen in PepsiCo’s revenues during this period, the effect of which was further amplified by a 42% rise in profitability. Net income margins increased from 7.7% in 2017 to 10.9% in 2019. Margins shot up in 2018 due to tax benefits received, but margin in 2019 was still above the 2017 level due to benefits from the company’s productivity program. On a per share basis, earnings increased from $3.40 in 2017 to $5.23 in 2019.

PepsiCo’s P/E multiple dropped from 32x at the end of 2017 to 26x by the end of 2019 mainly due to growth in EPS being higher than growth in the stock price. However, the P/E multiple dropped further in the initial few months of 2020 only to recover over the recent weeks, and now stands at 26x (same as Dec 2019 level). We

On Wednesday, analysts at Morgan Stanley reiterated their Overweight rating on PepsiCo (PEP) after the beverage company released strong Q3 results.

The analysts indicated that PepsiCo’s stock has underperformed defensive peers because it’s not a true COVID-beneficiary given the weakness in on-premise beverages (think bars and restaurants). Additionally, it’s not a full cyclical post-recovery story given that more than two-thirds of its profit comes from the snacks/food business. Given that, investors played a barbell approach to COVID with exposure to both COVID-beneficiaries and COVID-recovery names and PEP falling in the middle, i.e, flying under the radar given the intense barbell focus.

Analyst view this level of underperformance as too severe for two reasons: “(1) [They] believe PEP organic topline growth outperformance vs. US centric food peers will re-emerge in 2021, supported by (2) PEP’s US scanner data in the last 12 weeks holding up better sequentially than US centric food peers (as well as US HPC peers), highlighting how topline momentum at PEP is more sustainable.”

Another positive sign that resulted in Morgan Stanley reiterating their Overweight rating on PepsiCo is the successful recovery of their beverage sales. Organic sales growth in 2Q2020 was -7%, whereas 3Q2020 experienced growth of +3%. Future expectations for Pepsi’s sales remain at +3.5% for 4Q2020 and +4.5% for the 2021 fiscal year, allowing analysts to view Pepsi’s future as bright.

Over the past couple of years, PepsiCo’s business model has shifted to more heavily weight success based on the sale of its snacks. In the past few quarters alone, Pepsi’s snacks have experienced strong results due to heavy investments in this division of the business and the pandemic stay-at-home orders. Given that the snack business accounts for two-thirds of Pepsi’s overall revenue, recent success in this division resulted in Morgan Stanley having an optimistic

  • PepsiCo is focused “100%” on its strategy in energy drinks, CEO Ramon Laguarta said on the company’s earnings call Thursday in response to a question about whether it would follow Coca-Cola into hard seltzer.
  • Laguarta indicated that hard seltzer is one of “a lot of opportunities in front of us,” and that energy drinks offer more long-term potential while hard seltzer could be a shorter-lived trend.
  • The comments show how PepsiCo and rival Coca-Cola are taking different paths during the pandemic, capitalizing on two distinct categories that have both been in-demand.
  • Visit Business Insider’s homepage for more stories.

Pepsi and Coke spent years fighting each other over cola. Lately, though, the two have been taking different paths when it comes to selling beverages to pandemic-weary consumers.

Coca-Cola jumped into hard seltzer on Tuesday, announcing a partnership with Molson Coors that will bring an alcoholic version of its Topo Chico hard seltzer to the US in 2021. But PepsiCo doesn’t have any plans to follow suit, CEO Ramon Laguarta said Thursday during an earnings call.

Instead, PepsiCo is devoting its “100% focus” to its plan for energy drinks, he said in response when an analyst asked him whether PepsiCo would also break into hard seltzer.

Laguarta pointed to PepsiCo’s work on energy drinks, including its acquisition of Rockstar, a distribution agreement with Bang Energy, both of which it announced earlier this year and is still integrating into its business. Those, along with its Mountain Dew- and Starbucks-branded beverages, are a top emerging category for the company, he said.

“Those four big pillars, that’s taking a lot of our focus, and that’s going to be our priority, especially in 2021,” he said.

PepsiCo’s focus on energy drinks during the pandemic marks a different path from Coca-Cola, though both categories have been growing

PepsiCo, Inc. PEP has reported strong third-quarter 2020 results, wherein earnings and sales surpassed estimates and improved year over year as well. Despite continued challenges related to the coronavirus pandemic, the company’s robust third quarter performance was backed by its resilience and strength in the global snacks and foods business as well as improvement in the beverage category.

The company also gained from its strong portfolio of brands, a responsive supply chain and flexible go-to-market systems, which helped maintain continued supplies amid the coronavirus pandemic.

Shares of this Zacks Rank #3 (Hold) company have inched up 1.4% year to date against the industry’s 8.5% decline.

Quarter in Detail

PepsiCo’s third-quarter core EPS of $1.66 beat the Zacks Consensus Estimate of $1.48 and also increased 6.4% year over year. In constant currency, core earnings were up9% from the year-ago period. The company’s reported EPS of $1.65rose 10% year over year.

PepsiCo, Inc. Price, Consensus and EPS Surprise

PepsiCo, Inc. Price, Consensus and EPS Surprise

PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote

Net revenues of $18,091 million improved 5.3% year over year and also surpassed the Zacks Consensus Estimate of $17,288 million. On an organic basis, revenues grew 4.2% year over year. Foreign currency impacted revenues and earnings by 2% and 3%, respectively, in the third quarter. Revenues benefited from continued momentum in snacking category as well as gains in beverage business.

Revenues also reflected gains from strong volume growth and robust pricing during the quarter. Total volume increased 2% in the reported quarter. Notably, organic volume for snacks/food business improved 4% while it slipped2% for the beverage business. Meanwhile, net pricing climbed 3% in the third quarter, driven by strong pricing across almost all segments, except AMESA.

On a consolidated basis, reported gross margin contracted 32 basis points (bps) while core gross margin declined60 bps. Reported operating margin

On Thursday, before the opening bell, PepsiCo reported better-than-expected earnings results with its fiscal year 2020 third-quarter earnings release. On the top line, revenues of $18.09 billion exceeded expectations of $17.23 billion. On the bottom line, adjusted earnings per share of $1.66 exceeded expectations of $1.49 per share.

In addition to the positive headline numbers, PepsiCo’s organic revenue increased by 4.2 percent. Pepsi’s Frito-Lay and Quaker Foods businesses both reported organic revenue growth of 6%.  Its North American beverage unit’s organic sales rose by 3% this quarter.

In the press release, Chairman and CEO Ramon Laguarta said: “Despite the ongoing volatility and complexity in our operating environment, I believe our third quarter performance reinforces the diversification of our portfolio, the resilience and agility of our teams across every continent and demonstrates our ability to support our customers and communities during their time of need while also delivering good results for our shareholders.”

He also noted: “As the environment continues to evolve, we remain committed to executing on our strategy to become Faster, Stronger, and Better and win in the marketplace. Given our year-to-date business performance and based on what we can reasonably predict at this time, we are providing an update to our full-year 2020 guidance and now expect to deliver approximately 4 percent organic revenue growth and approximately $5.50 in core earning per share”.

For the full year, PepsiCo now expects approximately $10 billion in cash from operating activities and free cash flow of approximately $6 billion, and net capital spending of $4 billion. Total cash return to shareholders is expected to be approximately $7.5 billion, dividends of approximately $5.5 billion, and shares repurchases of approximately $2.0 billion.

What did you think of the quarter? Let us know in the comment section below!

PepsiCo Inc. is a holding in