PepsiCo Inc. (PEP – Free Report) has shown a marked recovery in the past month, with its shares rising as much as 7.1%. The PEP stock’s momentum can be mainly attributed to its robust fourth-quarter 2024 results, wherein earnings surpassed the Zacks Consensus Estimate and improved year over year. Effective cost controls, driven by incremental investments to improve market competitiveness, mainly aided the bottom-line results. The company’s top line also beat the consensus mark.
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The momentum in the company’s shares caused it to outperform the broader sector and the S&P 500 index while it lagged the Beverages – Soft Drinks industry. The Consumer Staples sector has grown 6.9% in the past month, but the S&P 500 has declined 2.2%. Meanwhile, the broader industry has rallied 10.4% in the past month.
PepsiCo’s One-Month Price Performance
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Currently priced at $155.99, The PEP stock’s price reflects a 10.2% premium to the company’s recent 52-week low of $141.51. The PepsiCo stock is trading at a 15% discount from its 52-week high of $183.41, reflecting upside potential. The stock trades above its 50-day moving average, indicating a bullish sentiment.
PEP Stock Trades Above 50-Day Moving Average
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Let us explore the reasons behind the company’s steady but strong movement on the bourses and potential for growth.
Factors Portraying PEP’s Inherent Strength
PepsiCo is well-poised to benefit from strength and resilience in core categories, diversified portfolio, modernized supply chain, improved digital capabilities, and flexible go-to-market distribution systems. Robust consumer demand trends, effective strategies and strong pricing have been the key drivers.
PEP’s productivity and cost-management efforts contribute to its positive outlook, with profitability supported by cost controls and strategic investments to boost market competitiveness. The company plans to heighten its focus on comprehensive cost management to increase productivity, offset cost inflation, and invest in brand growth, innovation and channel expansion.
PepsiCo’s international business continues to hallmark its overall performance, delivering significant volume and organic revenue growth. In fourth-quarter 2024, the company continued to benefit from gains in its international business, which delivered year-over-year organic revenue growth of 6%. The international business reported an expansion of 260 basis points in the core operating profit margin.
Developing and emerging markets offer significant growth potential due to lower per-capita consumption. The company has been expanding in developing/emerging markets like Russia, Mexico, China, India, Brazil and Africa through tailored distribution models, as well as by offering locally relevant innovation and value-added products.
In 2025, PepsiCo expects to continue progressing on the expansion of its international business and executing plans to improve the performance of its North America segment. Additionally, the company’s multi-year productivity initiatives are poised to help fund disciplined commercial investments and aid profitability. Consequently, the company expects year-over-year organic revenue growth in the low-single digits for 2025. It forecasts core constant-currency EPS growth in the mid-single-digits year over year.
Does PEP’s Valuation Discount Signal Buying Opportunity?
PepsiCo is currently trading at a forward 12-month P/E ratio of 18.6X, below the industry average of 19.22X and the S&P 500’s average of 21.95X.
PEP shares also trade at a discount to its competitors, including The Coca-Cola Company (KO – Free Report) , Vita Coco Company (COCO – Free Report) and Monster Beverage (MNST – Free Report) , with higher P/E multiples of 24.12X, 27.87X and 29.57X, respectively.
Although the PEP stock’s valuation is currently lower than that of its industry peers, this gap might not be as advantageous as it appears. The lower price could signal underlying issues rather than presenting a straightforward investment opportunity. At this moment, its current valuation seems unwarranted. PepsiCo has a Value Score of C.
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PepsiCo’s Estimate Revision Trend
The Zacks Consensus Estimate for PEP’s 2025 and 2026 EPS moved down in the last 30 days, indicating negative sentiment among analysts for the company’s earnings. Although the company’s outlook looks decent, analysts seem less confident about PepsiCo’s prospects. The Zacks Consensus Estimate for 2025 and 2026 EPS have moved down 2.5% and 3.1%, respectively, in the past 30 days.
For 2025, the Zacks Consensus Estimate for PEP’s sales and EPS implies 0.1% and 1.7% year-over-year growth, respectively. The consensus mark for 2026 sales and earnings indicates growth of 3.4% and 6.4% year-over-year, respectively.
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What Keeps Investors Skeptical About PEP?
While PepsiCo’s inherent strengths show promise, investors continue to be skeptical about the company’s ongoing headwinds. Its revenue performance in the fourth quarter of 2024 reflected headwinds related to subdued category demand in its convenient food business and the impacts of a product recall in the QFNA segment. Business disruptions caused by escalating geopolitical tensions in some international markets also hurt performance.
As a result, revenues declined 0.2% year over year in the fourth quarter. The unit volume was down 1% each for the convenient food business and the beverage business. Foreign currency impacted revenues by 2%.
The company’s troubles in the North America markets are partially attributed to increased pricing in response to rising inflation in the past few years, which has led to reduced volumes as consumers adjust their spending habits amid economic pressures. Additionally, PEP is witnessing headwinds due to product recalls in the QFNA segment related to contamination issues such as Salmonella in various cereal and snack items.
How to Approach the PEP Stock?
PepsiCo exhibits strong long-term growth potential, supported by its industry position, cost-management initiatives, global presence and strategic execution. However, near-term challenges, including weak category trends in North America and broader market conditions, warrant caution before investing.
The PEP stock’s price recovery and a discounted valuation relative to peers present an attractive opportunity, but its negative estimate revision trend suggests a cautious approach for new 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.
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