PepsiCo (NASDAQ: PEP) shares have traded in a tight range this year, and there was a muted investor reaction after the company reported its third-quarter results and lowered guidance. Given investors’ non-reaction to the disappointing news, you may wonder if now is the time to buy the stock.
Let’s explore four crucial aspects investors should ponder before considering an investment in PepsiCo stock.
Examining the Revenue and Guidance
PepsiCo’s Q3 results showed a mixed performance. The revenue decreased by 0.6% year over year to $23.32 billion, with 1.3% organic growth falling slightly short of analyst projections. Adjusted earnings rose by 5% year over year to $2.31, surpassing the consensus estimate of $2.29. Despite this, volumes for both snacks and beverages dropped by 2%, with specific challenges in the Quaker Foods segment due to contamination issues.
Assessment of the Beverage Business
PepsiCo’s beverage segment faced challenges, losing its second-place soda brand ranking in the U.S. Dr Pepper overtook Pepsi, leveraging innovative flavors to resonate with younger consumers. While PepsiCo’s beverage performance remains sluggish, the company sees promise in products like Gatorade and Propel, despite challenges in the energy drink category due to reduced convenience store traffic.
Image source: Getty Images.
Importance of Snack Business Growth
PepsiCo’s snack business, historically a growth driver, faced flat revenue and a 1% decline in Q3. Despite this, PepsiCo remains optimistic about the snack category’s potential, investing in product innovations and focusing on consumer trends like mini meals and healthier options to drive future growth.
Evaluation of PepsiCo’s Valuation
Currently trading at a forward P/E ratio of under 20, PepsiCo’s valuation appears favorable based on analyst estimates for the upcoming year. Although below its historical range, the company aims to reaccelerate growth in snacks. However, without significant pricing power, the stock’s valuation may remain steady for the near term.
Considering a 3.2% forward dividend yield and fair valuation, PepsiCo offers stability to investors, although potential stock price movements might be limited in the short run.
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