Despite facing inflationary pressures, global food and beverage giant PepsiCo, Inc. (PEP) reported better-than-expected third-quarter 2022 results. Core EPS of $1.97 beat the consensus estimate by 6.7%, while its revenue came in at $21.97 billion, surpassing the consensus estimate by 5.5%.
After reporting better-than-expected results, PEP’s Chairman and CEO Ramon Laguarta said, “We are very pleased with our results for the third quarter as our global business momentum remains strong. Given our year-to-date performance, we now expect our full-year organic revenue to increase 12 percent (previously 10 percent) and core constant currency earnings per share to increase 10 percent (previously 8 percent).”
Beverage makers usually survive inflationary and recessionary environments well due to their inelastic demand. Despite the economy expected to witness a recession by the end of this year, PEP has provided strong guidance for fiscal 2022. Wall Street analysts expect the stock to hit $183.70 in the next 12 months, indicating a potential upside of 3%.
Moreover, PEP’s reliable dividends make it an attractive investment amid these uncertain times. The company’s forward annual dividend of $4.60 yields 2.58% on its current price. PEP has grown its dividend payments for 49 consecutive years. Over the past five years, the company’s dividends have grown at a CAGR of 7.4%.
The stock has gained 2.6% in price year-to-date and 12% over the past year to close the last trading session at $178.27.
Here’s what could influence PEP’s performance in the upcoming months:
Robust Financials
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter ended September 3, 2022. The company’s non-GAAP net income increased 10% year-over-year to $2.73 billion.
In addition, its non-GAAP EPS came in at $1.97, representing an increase of 10% year-over-year. Also, its non-GAAP operating profit increased 10.9% year-over-year to $3.59 billion.
Favorable Analyst Estimates
Analysts expect PEP’s EPS for fiscal 2022 and 2023 to increase 8.3% and 7.6% year-over-year to $6.78 and $7.30. respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 6.6% and 3.3% year-over-year to $84.72 billion and $87.51 billion, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, PEP’s 53.24% is 63.1% higher than the 32.63% industry average. Likewise, its 8.48% trailing-12-month levered FCF margin is 178.1% higher than the industry average of 3.05%. Furthermore, the stock’s trailing-12-month Capex/Sales of 5.86% compares to the industry average of 3.19%.
POWR Ratings Show Promise
PEP has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PEP has an A grade for Quality, in sync with its higher-than-industry profitability.
It has a B grade for Stability, consistent with its 0.57 beta. In addition, favorable analyst estimates justify its B grade for Sentiment.
PEP is ranked #8 out of 33 stocks in the A-rated Beverages industry. Click here to access PEP’s Growth, Value, and Momentum ratings.
Bottom Line
PEP is currently trading above its 50-day and 200-day moving averages of $171.30 and $169.45, indicating an uptrend. Despite the economic headwinds, PEP managed to post strong numbers for the last quarter. Moreover, the company has guided strong organic revenue and earnings growth for the full year.
Given PEP’s robust financials, favorable analyst estimates, high profitability, and reliable dividend payments, it could be wise to invest in the stock now.
How Does PepsiCo, Inc. (PEP) Stack Up Against its Peers?
PEP has an overall POWR Rating of A, equating to a Strong Buy rating. Check out these other stocks within the Beverages industry with an A (Strong Buy) rating: Coca-Cola Consolidated, Inc. (COKE), Coca-Cola FEMSA, S.A.B. de C.V. (KOF), and Suntory Beverage & Food Limited (STBFY).
PEP shares were trading at $178.50 per share on Wednesday morning, up $0.23 (+0.13%). Year-to-date, PEP has gained 4.85%, versus a -18.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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