Goldman reaffirms "buy" rating on PepsiCo (PEP.US): Transformation strategy and dividend advantage are key drivers

Goldman reiterated its "buy" rating on PepsiCo (PEP.US) and maintained a target price of $175, following the company's management presentation at the New York Consumer Analysts' Conference, where management expressed optimism about its long-term growth prospects. During the presentation, PepsiCo management highlighted its transition to a more agile and resilient business model, focusing on double-digit revenue and profit growth. Goldman analyst Bonnie Herzog noted that this transition has positioned PepsiCo favorably in the competitive convenience snack and beverage market. The company's financial strength is reflected in its record of increasing dividends for 52 consecutive years, with a current dividend yield of 3.76%. Herzog expressed confidence in PepsiCo's ability to achieve sustainable long-term growth and noted the significant investments the company has made in its operations. She believes these investments align with PepsiCo's long-term growth strategy and are poised to drive its continued expansion. Goldman's analysis also noted that PepsiCo's current valuation presents an attractive investment opportunity. Herzog mentioned that the company's stock has a 2026 expected price-to-earnings ratio of 16.3, representing a 16% discount to the consumer staples sector. This valuation is below the company's historical average of about 11% to 14% premium over the past three to five years. The data suggests the stock is currently undervalued. In summary, Goldman believes PepsiCo's stock offers an attractive risk/reward profile, thus maintaining its "buy" rating and $175 target price. Pepsico reported its fourth-quarter 2024 earnings, with EPS of $1.96, slightly above the expected $1.95, but revenue of $27.78 billion, below the expected $27.95 billion. The company announced an increase in its quarterly dividend to $1.355 per share, up 7% from the previous year, and plans to further increase its dividend in 2025. The company continues to focus on strategic restructuring and innovation, particularly in its international business, which remains a key growth driver. PepsiCo management emphasized the importance of international markets and innovation in health products as part of its ongoing strategy. Other Wall Street views Despite the missed revenue, Jefferies analysts expressed confidence in PepsiCo's international business and strategic transformation. The firm adjusted its target price to $171 and maintained a "buy" rating. TD Cowen revised its target price to $150 and maintained a "hold" rating, noting PepsiCo's guidance for low single-digit organic sales growth in 2025.