Is PepsiCo Stock a Buy, Sell or Hold at a 19.8X P/E Multiple?
PepsiCo Inc. PEP stock is trading at a discount compared with the Zacks Beverages – Soft Drinks industry. With a forward 12-month Price/Earnings ratio of 19.8X, it sits below the industry average of 21.5X and the Consumer Staples sector’s 18.4X. The stock also trades below the S&P 500’s multiple of 21.9X.
The soft drink behemoth has a market capitalization of $233.5 billion. The average volume of shares traded in the last three months was 5.4 million.
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The stock is attractively valued compared with soft drinks companies like Coca-Cola KO, Vita Coco Company COCO and Monster Beverage MNST, trading at P/E multiples of 24.1X, 27.3X and 28.6X, respectively.
PepsiCo shares have gained 4.3% in the past three months, underperforming the broader industry’s 8.2% growth and the Consumer Staples sector’s 9.6% return. However, the PEP stock has matched Zacks S&P 500 composite’s return in the same time frame.
PEP’s 3-Month Stock Price Performance
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PepsiCo’s steep valuation and stock momentum underscore investors' high expectations for the company, which is positioned as a leading global food and beverage company. However, the stark contrast in valuation might prompt caution among those weighing the risks versus potential rewards at its current price point.
Let us delve deeper and find out factors aiding the company’s growth.
What Holds Up PepsiCo Stock?
PEP stays ahead of the curve with investments in brands, go-to-market systems, supply chains, manufacturing capacity and digital capabilities to build competitive advantages. Strength and resilience in its categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities and flexible go-to-market distribution systems position it for long-term growth.
PepsiCo remains dedicated to driving efficiency and effectiveness by reducing costs and reinvesting savings to expand scale and core capabilities. PEP anticipates reaching its productivity targets through savings from restructuring initiatives.
The company is also positioned to benefit from its international presence. It generates a significant portion of its revenues from outside the United States. Developing and emerging markets present considerable growth opportunities for PEP due to their relatively low per-capita consumption. The company has been expanding in developing/emerging markets like Russia, Mexico, China, India, Brazil and Africa through tailored distribution models, and by offering locally relevant innovation and value-added products.
Stable Estimate Trend for PEP
The Zacks Consensus Estimate for PepsiCo's 2024 EPS was unchanged in the last 30 days, indicating that analysts’ expectations for the company's earnings are steady. The stable estimate revision trend suggests that there are no significant developments or changes in the company's outlook to prompt analysts to adjust their earnings forecasts. The consensus estimate for 2025 EPS has moved down by a penny in the past seven days.
For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 2.4% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 4.3% and 7.3% year-over-year increases, respectively.
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Moreover, PepsiCo’s stock is trading below its 50-day moving average, indicating a bearish sentiment.
PEP Trades Below 50-Day Moving Average
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What’s Holding Back PEP’s Performance?
Bearish technical indicators and stagnant estimate revisions have left investors uncertain about PEP’s outlook.
PepsiCo’s downside comes from its soft top-line performance trends, impacted by the challenges in its North America operations since early 2024. The North America convenient foods business has faced soft demand, led by higher prices and product recalls in the Quaker Foods North America (“QFNA”) segment.
The company’s aggressive price increases implemented in response to the rising inflation in the past few years have led to lower volumes as consumers adjust their spending habits amid economic pressures. Additionally, product recalls in the QFNA segment, related to contamination issues such as Salmonella in various cereal and snack items, have weighed on the overall sales performance. These recalls reduced PepsiCo’s organic sales by 60 basis points in the second quarter of 2024.
As a result, PEP reported muted revenue growth of 0.8% in the second quarter, much lower than 10.4% growth in the prior-year quarter and the 2.3% increase registered in the first quarter of 2024.
How to Strategize Your PEP Stock Investment?
Investing in the PepsiCo stock requires a thoughtful strategy, especially given the company’s recent challenges in its North America operations and the broader market environment. Recent market data suggests bleak prospects for near-term recovery in its North America business. However, one cannot ignore how PEP’s focus on its holistic cost-management initiatives and the execution of development strategies have helped sustain a good earnings growth graph.
Trading at a discounted P/E, below the industry average, PEP offers compelling value. However, its muted estimate revision trend and bearish technical indicators call for a cautious approach for new investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #3 (Hold) stock. For existing investors, holding on to the PEP stock could be wise, given its strong long-term potential.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
Vita Coco Company, Inc. (COCO) : Free Stock Analysis Report
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
Monster Beverage Corporation (MNST) : Free Stock Analysis Report