We came across a bullish thesis on PepsiCo, Inc. (PEP) on Kroker Equity Research’s Substack by Kroker Equity Research. In this article, we will summarize the bulls’ thesis on PEP. PepsiCo, Inc. share was trading at $174.81 as of Oct 11th. PEP’s trailing and forward P/E were 25.78 and 20.08 respectively according to Yahoo Finance.
ja-san-miguel-xYSp0kkIUio-unsplash
PepsiCo, Inc. is one of the largest players in the food and beverage industry, known for its extensive portfolio of brands, including Pepsi, Mountain Dew, Lay’s, and Gatorade. The company operates through six key divisions, serving markets in North America, Latin America, Europe, Asia Pacific, Africa, and the Middle East.
PepsiCo generates revenue by producing, marketing, and selling beverages, snacks, and food products through a vertically integrated supply chain. Its diverse portfolio across beverages and convenient foods captures a significant market share. The company’s strong distribution network, including direct-to-store delivery, ensures broad consumer access. PepsiCo’s partnership with Celsius in the energy drink market, where it holds a minority stake and serves as a preferred distributor, is a key growth driver helping it expand its presence in the fast-growing energy drink sector.
Investing in PepsiCo offers several compelling reasons. The company has demonstrated strong financial performance, consistently offsetting cost pressures through price hikes. PepsiCo’s robust pricing power helped it grow revenue despite slight dips in organic volume, which, in turn, boosted earnings and cash flow. This steady cash generation supports PepsiCo’s long-standing commitment to shareholders through dividends and share buybacks. As a Dividend Aristocrat, PepsiCo has raised dividends for over 50 consecutive years, providing reliable returns. Currently, the dividend yield is 3.2%, above the five-year average, reflecting strong shareholder value.
PepsiCo’s stock appears slightly undervalued based on a Discounted Cash Flow (DCF) valuation, with a fair value estimate of $187 per share compared to the current price of $173. Even under conservative assumptions, the stock offers a reasonable margin of safety. PepsiCo’s forward P/E ratio of 20.55x and EV/EBIT ratio of 18.13x also suggest that the stock is trading below its historical averages, presenting a potential buying opportunity. With its strong financials, stable growth, and strategic initiatives like the Celsius partnership, PepsiCo is well-positioned for long-term growth, making it an attractive investment for those seeking both stability and consistent returns.
PepsiCo, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 65 hedge fund portfolios held PEP at the end of the second quarter which was 62 in the previous quarter. While we acknowledge the risk and potential of PEP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PEP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and 10 Best of Breed Stocks to Buy For The Third Quarter of 2024 According to Bank of America.
Disclosure: None. This article was originally published at Insider Monkey.