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PEP Stock Moves Mere 5% in Six Months: Time to Sell or Stay Patient?
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PepsiCo Inc. (PEP - Free Report) stock seems to have fizzled out, showing slight movement on the bourses in recent months. PEP's 4.6% growth in the past six months is underwhelming compared with the broader industry and the Zacks Consumer Staples sector’s rise of 9.6% and 7.2%, respectively.
Currently priced at $173.76, the PEP stock trades at a 6.2% discount to its 52-week high of $183.41 reached on May 16, 2024. Moreover, PepsiCo’s current price indicates that the stock has reverted to the levels it saw in late 2021 and through most of 2022. The company’s 3-year stock performance indicates that its shares have barely risen 10% in this period.
While the stock’s 10% growth in three years demonstrates some resilience amid market volatility, PEP has surely not delivered the robust returns many investors had hoped for, casting doubt on its near-term potential.
This lackluster stock performance raises questions on whether the PEP stock will regain momentum or if it is time to consider other opportunities.
Image Source: Zacks Investment Research
What’s Underwhelming PEP’s Performance?
PepsiCo’s struggles mainly relate to the challenges in its North America operations since early 2024, which have impacted its overall sales performance. The North America business is experiencing reduced consumer demand, attributed to increased pricing 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. This resulted in subdued revenue growth for PEP’s North America operations in the second quarter of 2024.
Notably, the Frito-Lay North America (“FLNA”) division experienced a 4% year-over-year volume decline in the second quarter, whereas the PepsiCo Beverages North America (“PBNA”) division saw a 3% drop in volume. Organic sales for the FLNA segment were flat year over year in the second quarter compared with a 14% increase in second-quarter 2023. The PBNA segment reported a 1% rise in organic sales in the recent quarter, a stark contrast with 10% growth recorded in the prior-year quarter.
Additionally, product recalls in the QFNA segment, linked to contamination issues such as Salmonella in various cereal and snack items, have weighed on the overall sales performance. In the second quarter of 2024, these recalls negatively impacted the company’s overall organic sales by 60 basis points.
Organic sales for the QFNA segment dropped 18% year over year, driven by the recalls and weaker demand within the category. Core operating profit fell 23% year over year due to the recall impacts and ongoing inflationary pressures.
As a result, PEP reported muted revenue growth of just 0.8% in the second quarter, much lower than 10.4% growth seen in the prior-year quarter and down from the 2.3% increase registered in the first quarter of 2024.
Can Sustained Earnings Growth Hold Up PEP Stock?
Although the revenue slowdown is a significant setback, PepsiCo has effectively protected its bottom line through comprehensive cost-management efforts. PepsiCo’s second-quarter core EPS increased 9% year over year, with a 10% rise in core earnings on a constant-currency basis. This growth was achieved by countering inflationary pressures with cost-management and revenue-management measures. The company also projects at least an 8% year-over-year increase in core constant-currency EPS for 2024.
PEP has benefited from strength and resilient categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities, and flexible go-to-market distribution systems. The company’s focus on executing strategies positions 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.
A Stable Estimates Trend for PEP
The Zacks Consensus Estimate for PepsiCo's 2024 and 2025 EPS were 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.
For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 2.6% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 4.4% and 7.6% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Do PEP’s Valuation Discount Signal a Buying Opportunity?
PepsiCo is currently trading at a forward 12-month P/E ratio of 20.11X, below the industry average of 21.6X and the S&P 500’s average of 21.5X.
The stock also trades at a discount to its peers, including The Coca-Cola Company (KO - Free Report) , Monster Beverage (MNST - Free Report) and Vita Coco Company (COCO - Free Report) , which are trading at forward 12-month P/E multiples of 22.29X, 25.91X and 23.62X, respectively.
Image Source: Zacks Investment Research
Although PEP’s stock valuation is currently much lower than its industry peers, this valuation gap might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting a straightforward investment opportunity.
Moreover, PepsiCo’s stock is trading above its 50-day and 200-day moving averages. This technical strength indicates positive market sentiment and confidence in PEP’s overall financial health and long-term prospects.
PEP Stock Trades Above 50 and 200-Day Moving Average
Image Source: Zacks Investment Research
How to Play the PEP Stock?
Investors face a pivotal question regarding PepsiCo’s investment decision. The company’s troubles in the North America business and adverse macroeconomic situation put the stock in a tough spot. 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.
PEP’s meager 5% growth in the past six months presents a challenging scenario for investors. The current situation calls for a cautious approach for existing investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #4 (Sell) stock.
Image: Shutterstock
PEP Stock Moves Mere 5% in Six Months: Time to Sell or Stay Patient?
PepsiCo Inc. (PEP - Free Report) stock seems to have fizzled out, showing slight movement on the bourses in recent months. PEP's 4.6% growth in the past six months is underwhelming compared with the broader industry and the Zacks Consumer Staples sector’s rise of 9.6% and 7.2%, respectively.
Currently priced at $173.76, the PEP stock trades at a 6.2% discount to its 52-week high of $183.41 reached on May 16, 2024. Moreover, PepsiCo’s current price indicates that the stock has reverted to the levels it saw in late 2021 and through most of 2022. The company’s 3-year stock performance indicates that its shares have barely risen 10% in this period.
While the stock’s 10% growth in three years demonstrates some resilience amid market volatility, PEP has surely not delivered the robust returns many investors had hoped for, casting doubt on its near-term potential.
This lackluster stock performance raises questions on whether the PEP stock will regain momentum or if it is time to consider other opportunities.
Image Source: Zacks Investment Research
What’s Underwhelming PEP’s Performance?
PepsiCo’s struggles mainly relate to the challenges in its North America operations since early 2024, which have impacted its overall sales performance. The North America business is experiencing reduced consumer demand, attributed to increased pricing 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. This resulted in subdued revenue growth for PEP’s North America operations in the second quarter of 2024.
Notably, the Frito-Lay North America (“FLNA”) division experienced a 4% year-over-year volume decline in the second quarter, whereas the PepsiCo Beverages North America (“PBNA”) division saw a 3% drop in volume. Organic sales for the FLNA segment were flat year over year in the second quarter compared with a 14% increase in second-quarter 2023. The PBNA segment reported a 1% rise in organic sales in the recent quarter, a stark contrast with 10% growth recorded in the prior-year quarter.
Additionally, product recalls in the QFNA segment, linked to contamination issues such as Salmonella in various cereal and snack items, have weighed on the overall sales performance. In the second quarter of 2024, these recalls negatively impacted the company’s overall organic sales by 60 basis points.
Organic sales for the QFNA segment dropped 18% year over year, driven by the recalls and weaker demand within the category. Core operating profit fell 23% year over year due to the recall impacts and ongoing inflationary pressures.
As a result, PEP reported muted revenue growth of just 0.8% in the second quarter, much lower than 10.4% growth seen in the prior-year quarter and down from the 2.3% increase registered in the first quarter of 2024.
Can Sustained Earnings Growth Hold Up PEP Stock?
Although the revenue slowdown is a significant setback, PepsiCo has effectively protected its bottom line through comprehensive cost-management efforts. PepsiCo’s second-quarter core EPS increased 9% year over year, with a 10% rise in core earnings on a constant-currency basis. This growth was achieved by countering inflationary pressures with cost-management and revenue-management measures. The company also projects at least an 8% year-over-year increase in core constant-currency EPS for 2024.
PEP has benefited from strength and resilient categories, a diversified portfolio, a modernized supply chain, enhanced digital capabilities, and flexible go-to-market distribution systems. The company’s focus on executing strategies positions 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.
A Stable Estimates Trend for PEP
The Zacks Consensus Estimate for PepsiCo's 2024 and 2025 EPS were 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.
For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 2.6% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 4.4% and 7.6% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Do PEP’s Valuation Discount Signal a Buying Opportunity?
PepsiCo is currently trading at a forward 12-month P/E ratio of 20.11X, below the industry average of 21.6X and the S&P 500’s average of 21.5X.
The stock also trades at a discount to its peers, including The Coca-Cola Company (KO - Free Report) , Monster Beverage (MNST - Free Report) and Vita Coco Company (COCO - Free Report) , which are trading at forward 12-month P/E multiples of 22.29X, 25.91X and 23.62X, respectively.
Image Source: Zacks Investment Research
Although PEP’s stock valuation is currently much lower than its industry peers, this valuation gap might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting a straightforward investment opportunity.
Moreover, PepsiCo’s stock is trading above its 50-day and 200-day moving averages. This technical strength indicates positive market sentiment and confidence in PEP’s overall financial health and long-term prospects.
PEP Stock Trades Above 50 and 200-Day Moving Average
Image Source: Zacks Investment Research
How to Play the PEP Stock?
Investors face a pivotal question regarding PepsiCo’s investment decision. The company’s troubles in the North America business and adverse macroeconomic situation put the stock in a tough spot. 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.
PEP’s meager 5% growth in the past six months presents a challenging scenario for investors. The current situation calls for a cautious approach for existing investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #4 (Sell) stock.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.