PEP

Will PepsiCo Beat The Consensus In Q1?

PepsiCo (NYSE: PEP) will report its Q1 2024 results on Tuesday, April 23. We expect the company’s adjusted revenues to come in at $18.2 billion and earnings at $1.55 on a per share and adjusted basis. This is slightly ahead of the consensus estimates of $18.1 billion and $1.52, respectively. PepsiCo likely continued to benefit from better pricing initiatives, especially for its smaller size variants.  Not only do we think that the company will navigate well in Q1, we believe its stock has some room left for growth. Our interactive dashboard analysis of PepsiCo’s Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive PepsiCo’s results?

Firstly, let us look at PEP stock performance in recent years. PEP stock has witnessed gains of 15% from levels of $150 in early January 2021 to around $170 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period.
However, the increase in PEP stock has been far from consistent. Returns for the stock were 17% in 2021, 4% in 2022, and -6% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that PEP underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same 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 with high oil prices and elevated interest rates, could PEP face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think PEP stock has some room for growth. We estimate PepsiCo’s Valuation to be $186 per share, reflecting only a 10% upside from its current level of around $170. Our forecast is based on a 23x P/E multiple for PEP and expected earnings of $8.19 on a per-share and adjusted basis for the full year 2024. The 23x P/E multiple aligns with the average value over the last four years.

Coming to the latest quarter, the company should benefit from better pricing trends. However, a weak consumer spending environment may weigh on the company’s overall performance. We don’t expect any meaningful growth in the company’s revenue or earnings. PepsiCo has guided for at least 4% sales growth on an organic basis. On a reported basis, the sales growth will be even lower, given the strengthening of the U.S. dollar.

Looking at the previous quarter, PepsiCo’s revenue of $27.85 billion in Q4’23 reflected a 4.5% organic growth driven by a 9% rise in pricing, offsetting a 4% decline in volume. On a GAAP basis, revenues were down 0.5%. Europe organic sales were up 10%, while Africa, Middle East, and South Asia sales were up 11% in Q4, primarily due to favorable foreign currency. Despite adverse currency translation for Latin America, the segment sales were up 8%. The company saw its adjusted operating margin improve 97 bps y-o-y to 11.4% in Q4, partly due to lower impairment charges. Higher revenues (organic) and margin expansion led to a 7% y-o-y rise in the bottom line to $1.78 on an adjusted basis.

While PEP stock looks like it has some 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.

Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 PEP Return -4% -1% 60%
 S&P 500 Return -4% 6% 126%
 Trefis Reinforced Value Portfolio -5% 2% 622%

[1] Returns as of 4/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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