Renowned beverage and snack food giant PepsiCo, Inc. (PEP) has triumphantly concluded its fiscal second quarter that ended June 17, 2023. It is the seventh consecutive quarter in which it registered a double-digit organic revenue growth and 15% core earnings per share growth, despite swinging consumer demand trends.
Looking forward, PEP expects its full-year 2023 organic revenue to increase by 10% and its core earnings per share to increase by 12%.
PEP’s Chairman and CEO, Ramon Laguarta, said, “Moving forward, we will look to elevate our focus on productivity initiatives to further support investments in innovation, brand building, digitalization, and sustainability to win in the marketplace and fortify our businesses for the long-term.”
Thanks to the inelastic demand for food and beverages, the industry has demonstrated immense resilience in the face of inflationary pressures. Amid prevalent concerns regarding economic downturns, investors search for trustworthy investment opportunities that ensure consistently stable returns, capable of weathering financial uncertainties.
On this front, PEP emerges as an attractive option, having a longstanding reputation for stability and consistent history of dividend payments. On May 2, 2023, PEP increased its quarterly dividend by 10% from the prior-year value to $1.265 per share, which was paid to shareholders on June 30, 2023.
The company has paid quarterly dividends since 1965 and increased its dividend for 51 consecutive years, reflecting its ability to pay back its shareholders. For the fiscal year 2023, the company expects total cash returns to shareholders of approximately $7.7 billion, comprises of dividends of $6.7 billion and share repurchases of $1.0 billion.
PEP pays a dividend of $5.06 per share annually, which translates to a 2.76% yield on the current price level. Its dividends have grown at 6.6% and 7.1% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 2.72%.
PEP’s trailing-12-month cash from operations of $10.59 billion is significantly higher than the industry average of $399.41 million. Also, its trailing-12-month ROCE and ROTC of 37.35% and 12.94% are 267.2% and 105.6% higher than the industry averages of 10.17% and 6.29%, respectively.
Against this backdrop, it would be beneficial to examine the trends of PEP’s key financial metrics to understand why it might be wise portfolio addition now.
Analyzing PepsiCo's Fiscal and Financial Performance (September 2020 - June 2023)
PEP’s trailing-12-month net income has shown fluctuations over the period examined. Here are some standout observations:
- September 2020: $7.04 billion
- December 2020: $7.12 billion
- March 2021: $7.5 billion
- June 2021: $8.21 billion
- September 2021: $8.14 billion
- December 2021: $7.62 billion
- March 2022: $10.16 billion
- June 2022: $9.24 billion
- September 2022: $9.71 billion
- December 2022: $8.91 billion
- March 2023: $6.58 billion
- June 2023: $7.90 billion
To summarize, there was a steady increase in net income until June 2021, with net income reaching $8.21 billion. After some fluctuation, the next prominent increase appeared in March 2022, with net income jumping to $10.16 billion. The year 2023 began with a steep fall as the net income sharply dropped to $6.58 billion in March and made a partial recovery to $7.90 billion by June 2023.
Measuring the last value from the first value indicates a growth rate of approximately 12%. It is crucial to note that while the data demonstrate volatility, recent numbers hint at ongoing recovery after significant falls.
PEP’s trailing-12-month revenue has shown consistent growth with few notable fluctuations over the period examined. An overview of this trend is as follows:
- September 2020: $68.56 billion
- December 2020: $70.37 billion
- March 2021: $71.31 billion
- June 2021: $74.58 billion
- September 2021: $76.68 billion
- December 2021: $79.47 billion
- March 2022: $80.85 billion
- June 2022: $81.86 billion
- September 2022: $83.64 billion
- December 2022: $86.39 billion
- March 2023: $88.04 billion
- June 2023: $90.14 billion
The growth trajectory of the company’s revenue showed no signs of slowing down in 2023, hitting another record-high at $88.04 billion in March 2023 and further elevating to $90.14 billion by June, which marks the highest point in the entire dataset.
Moreover, observing from the initial value in September 2020 to the last value in June 2023, there has been a noticeable growth of $21.79 billion or roughly 31.5% in PEP’s revenue. This suggests that the upward financial trend is anticipated to continue, showcasing the company's robust performance and positive revenue growth prospects.
The series data represents the PEP’s asset turnover from September 2020 to June 2023. Here's a summary of the trend and fluctuations:
- In September 2020, PEP reported an asset turnover of 0.79.
- A slight downward fluctuation was observed as the value decreased to 0.78 in March 2021.
- Subsequently, asset turnover was consistently improved, reaching 0.81 in June 2021, and an upward trend was clearly seen after that.
Stronger emphasis on more recent data reveals:
- By the end of 2022, PEP’s asset turnover increased to 0.89.
- This series’ highest recorded point was 0.96 in June 2023.
Looking at the entire time frame, there was growth in asset turnover over the recorded time period, with an increase of approximately 22% from September 2020 to June 2023.
In conclusion, PEP’s asset turnover has shown growth with some fluctuation, but the recent trend suggests an encouraging increase in performance. Overall, this suggests that PEP's efficiency in utilizing its assets to generate sales has generally improved.
PEP’s analyst price target has seen a generally upward trend over the reported period, with some minor fluctuations. Here are some notable observations:
- Initial Price Target: The series began on November 12, 2021, with an analyst price target of $168.
- Subsequent Stages: For about a month (until December 23, 2021), the analyst price target remained constant at $168. It then gradually moved to $172 by January 11, 2022, and then slightly decreased to $171.9 by February 4, 2022.
- Increase: There was a sudden jump to $187 in May 2022, which held steady for approximately a month.
- Minor Decrease: Slight drops were observed later in June 2022 when the analyst price target fell to $186.8 and again in late July to $185.5.
- Fluctuation & Final Increase: Over the remainder of 2022 into 2023, it fluctuated between $184.625 and $190, gradually inching to $201 by May 2023.
- Current Value: As of July 14, 2023, the analyst price target sits slightly lower at $200.8.
The overall increase from the initial value of $168 on November 12, 2021, to the current value of $200.8 (as of July 14, 2023) indicates a growth rate of 19.5%. Using this data, recent trends forecast potential positive performances in PEP's future, as suggested by increasing analyst price targets. However, occasional fluctuations indicate analysts' responses to changing market conditions.
Tracking PepsiCo's Share Price: A Seven-Month Analysis of Growth and Fluctuations
The share price data of PEP shows some fluctuations within the given period but has generally demonstrated a positive growth trend. Below are some key observations:
- As of January 20, 2023, the share price was $172.02.
- There was a short period of reduction in value, reaching its lowest at $169.99 by February 3, 2023. However, from this point, there was a general upward trend with occasional retractions.
- The stock price peaked in May 2023, hitting a high of $194.43 by May 12, 2023.
- Post the peak in May, there was a notable drop in price to $185.09 by May 26, 2023.
- Following the drop, there was a sluggish rise with minor fluctuations till the end of June before showing a slight decline again. The price was $184.55 as of June 30, 2023.
- There was a minor increase to $185.28 by July 7, 2023, but then a marginal fall where the price reported was $184.53 on July 13, 2023.
In conclusion, over the course of around seven months, PEP’s share price increased but with periodic descents. This indicates an overall positive growth rate but with evidence of intermittent decelerations. Here is a chart of PEP's price over the past 180 days.
Analyzing PEP’s POWR Ratings: Growth, Sentiment, and Quality
The overall POWR Ratings grade of PEP in the A-rated Beverages category has shown consistent performance across several weeks. As of the latest available data on July 14, 2023, PEP’s overall POWR Ratings grade is a B, equating to Buy, with its rank in the category being #9 out of 36 stocks.
- In the beginning weeks of 2023, PEP maintained an A (Strong Buy) POWR grade. Specifically, from January 21, 2023, to February 11, 2023, it sustained its position amongst the elite #7 and #6 in the Beverages category.
- However, in the week of February 18, its POWR grade fell to C (Neutral), pushing the stock down to the #18 rank.
- By the week of February 25, it improved slightly and upgraded its POWR grade to B (Buy), although its rank remained at #18.
- The following weeks saw the firm maintaining the B (Buy) grade but experiencing slight fluctuations in the ranks. During most of March and early April 2023, the rank hovered between #18 and #19.
- Significant improvement was seen from the week of April 29, 2023, onwards. The rank improved to #13, and subsequently, by mid-May, it reached #10.
- PEP has been consistent with a B (Buy) POWR grade and managed to maintain its 10th rank from May 20, 2023, to July 1, 2023.
- Lastly, as of the most recent data, PEP improved to the #9 rank for the weeks of July 8 and July 14 while still retaining the B (Buy) POWR grade.
The three most noteworthy dimensions in the POWR Ratings for PEP are Growth, Sentiment, and Quality. Here is the summary of the PEP’s POWR grade and rank in the category over the mentioned period (January - July 2023):
Quality - This is PEP’s consistently highest-rated dimension, maintaining ratings of the high 90s throughout January to July 2023. This demonstrates that quality is highly valued by the brand.
- January: 97
- February: 96
- March: 95
- April: 94
- May: 94
- June: 94
- July: 94
Growth- From January 2023 to March 2023, we see a significant decline in the growth score from 78 to 27. However, this trend reverses starting April 2023, with the rating jumping to 36 in April and significantly increasing in May to reach 94. The upward trend continues through July, where it stays strong at 93.
- January: 78
- February: 48
- March: 27
- April: 36
- May: 94
- June: 93
- July: 93
Sentiment - Starting at an impressive 89 in January 2023, there's a slump lowering the sentiment down to 65 by March 2023. Yet, beginning April, the sentiment makes a recovery, reaching 81. By July 2023, sentiment further progressed, ending on a relatively high note of 82.
- January: 89
- February: 68
- March: 65
- April: 81
- May: 78
- June: 79
- July: 82
How does PepsiCo, Inc. (PEP) Stack Up Against its Peers?
Other stocks in the Beverages sector that may be worth considering are Coca-Cola Consolidated, Inc. (COKE), Embotelladora Andina S.A. (AKO.B), and Suntory Beverage & Food Ltd (STBFY) - they have better POWR Ratings.
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PEP shares were trading at $187.92 per share on Friday afternoon, up $0.39 (+0.21%). Year-to-date, PEP has gained 5.45%, versus a 18.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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