PepsiCo Poised For Market-Beating Returns
62min read Why Now is the Time to Bet on the Beverage Giant’s Resurgence
Investors have been punished this year for holding shares of pepsico (PEP), with the stock plunging 14% year-to-date—far worse than the S&P 500’s 4.3% decline. But here’s the kicker: this slump has created a rare buying opportunity in a company that’s built to thrive even in turbulent times. Let’s break down why PepsiCo is primed to outperform once it navigates its current headwinds.
The Case for PepsiCo: Strength Amid Struggle
1. Core Earnings Power Remains Intact
Despite a rocky 2023-2024, PepsiCo’s non-GAAP metrics tell a compelling story. Core constant-currency EPS grew 14% in 2023 to $7.62, with 2024 guidance calling for at least 8% growth to hit $8.15. These figures strip out the noise of foreign exchange swings and one-time charges (like the $321M impairment of its Tropicana investment). Jim Cramer’s Take: “Don’t let the headlines fool you—PepsiCo’s cash machine is still firing on all cylinders.”
2. A Dividend Titan at a Discount
PepsiCo’s dividend yield of 4.1%—its highest in decades—is a beacon for income investors. The company has hiked its dividend for 52 consecutive years, and 2024’s 7% boost to $5.42 per share underscores its financial discipline. With a payout ratio of just 58% (below the 65% average for staples), there’s ample room to grow dividends even if earnings flatten.
Ask Aime: Is PepsiCo's stock a buy now?
3. Global Dominance in High-Growth Markets
While North America stumbles, emerging markets like Latin America (38% operating profit growth in 2023) and Africa/Middle East (21% profit growth) are booming. These regions are cashing in on pricing power and product innovation (think: Gatorade’s hydration tech or Lay’s localized flavors). PepsiCo’s pep+ sustainability goals also position it to win in ESG-conscious markets.
Why the Selloff is Overdone
The Current Pain Points
- North America’s Struggles: Quaker Foods’ recall and Frito-Lay’s volume declines have spooked investors.
- Tariffs and Commodity Costs: Higher input prices and trade barriers have squeezed margins.
But here’s the twist: these are temporary issues. The Quaker recall’s drag is fading, and management has slashed costs through automation and productivity (operating profit rose 4% in 2023). Meanwhile, currency headwinds in Europe and Russia are stabilizing.
The Silver Lining:
- Valuation: PEP trades at 16.1x forward earnings, a 22% discount to its five-year average and 20% below the S&P 500.
- Share Repurchases: PepsiCo plans $1B in buybacks this year, shrinking its 1.8B-share float.
The Catalysts on the Horizon
1. Pricing Power in a Slow-Growth World
Inflation may be cooling, but households are still cost-conscious. PepsiCo’s shift to value-focused products (e.g., smaller snack sizes, store-brand beverages) positions it to steal share from weaker competitors.
2. Emerging Markets Are the New Engine
Latin America’s 19% revenue growth in 2023 isn’t a fluke. With a population boom and rising middle classes, these regions will fuel top-line growth even if the U.S. economy sputters.
3. A Dividend Boost Could Be Coming
Analysts expect 2025 EPS of $8.30–$8.50, which could support another dividend hike—especially if the stock stays depressed.
Risks to Consider
- Commodity Volatility: Cooking oil and packaging costs could remain elevated.
- Trade Wars: U.S.-China tensions or EU tariffs could disrupt supply chains.
- North America Turnaround Lag: If Quaker and Frito-Lay volumes don’t rebound, earnings could miss estimates.
Conclusion: Buy the Dip, Hold for the Rebound
PepsiCo’s 14% YTD drop has pushed its valuation to a decade-low, creating a once-in-a-decade opportunity. With a fortress balance sheet ($9.7B cash), a dividend yield that rivals bonds, and growth engines firing overseas, this is a stock to buy on weakness.
The Numbers Back It Up:
- Margin of Safety: At $130, PEP is 28% below its 52-week high—a discount that doesn’t reflect its long-term potential.
- Historic Outperformance: In past recessions, PepsiCo’s defensive traits shone. During the 2008 crisis, it outperformed the S&P 500 by 22%.
Action Alert: Dip buyers should accumulate PEP at current levels. Set a target of $160+ once the earnings cloud lifts—a gain of 23%+ from here.
This is a classic “value trap” turned into a value goldmine. Don’t let the headlines scare you—PepsiCo is ready to roar.
