PepsiCo (NYSE: PEP) recently released its Q4 results, with revenues missing and earnings exceeding the street estimates. The company reported revenue of $22.8 billion and adjusted earnings of $1.96 per share, compared to the consensus estimates of $27.9 billion and $1.94, respectively. The company continues to face lower volume, while pricing continued to inch higher in Q4. PEP stock, with -9% returns since the beginning of 2024, has underperformed the broader S&P500 index, up 26%. Although PepsiCo posted a mixed quarter, we think its stock has some room for growth from its current levels of around $145. Separately, trade tensions caused volatility. See: What’s Happening With FDX Stock?
PepsiCo’s revenue of $22.8 billion in Q4 reflects a 2% organic growth driven by a 3% rise in pricing, offsetting a 1% decline in volume. Frito-Lay North America and Quaker Foods were the only two segments that saw organic sales decline during the quarter. While international markets showed strength, PepsiCo continued to encounter challenges in the North American market. This aligns with the company’s previous observations that U.S. consumers are exhibiting more cautious spending patterns. PepsiCo reported a 102 bps core operating margin expansion in Q4, bolstering its bottom line, which came in at $1.96, versus $1.78 in the prior-year quarter. Looking forward, PepsiCo expects low single-digit organic revenue growth and mid-single-digit core EPS growth in 2025.
Following its results announcement, PEP stock trended lower. Looking at a slightly longer time frame, the changes in PEP stock over the last four-year period have been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 21% in 2021, 7% in 2022, -3% in 2023, and -8% in 2024.
The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and trade wars, could PEP face a similar situation as it did in 2021, 2023, and 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? While we will soon update our model for PepsiCo to reflect the latest results, we think its stock offers ample room for growth.
At its current levels of $145, PEP stock is trading at under 19x trailing earnings of $8.16 per share, much lower than the stock’s average P/E ratio of 26x over the last five years. Although a modest downward adjustment to the valuation multiple may be warranted to reflect the softer North American market, we believe the current gap is too wide.
While PEP stock looks like it has ample room for growth, it is helpful to see how PepsiCo Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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