Since hitting an all-time high last November, the Nasdaq Composite has plunged as much as 20% in value and is currently down about 17.1%. Several popular stocks in the index have fallen even further, but some Nasdaq-traded stocks have not been hit nearly as hard.
For instance, consumer staples giant PepsiCo (PEP 0.15%) is trading down only about 9.9% from its peak $177 share price reached in January. The recent correction in PepsiCo's stock seems to be a temporary issue related to its most recent earnings report and actually just created a buying opportunity for some investors. The price drop is one rather obvious reason to buy this value stock, but there are at least three other reasons to consider. Let's dive into the stock's fundamentals and valuation and find out why PepsiCo is a buy right now.
Image source: Getty Images.
1. PepsiCo has brand power and it flexed it in 2021
PepsiCo reported its earnings for the fiscal year ended 2021 in mid-February, and the earnings results for the year were arguably very positive for shareholders.
PepsiCo produced $79.5 billion in net revenue in 2021, equivalent to a 12.9% growth rate. So how did the $220 billion (by market capitalization) snack and beverage company pull off double-digit net sales growth last year?
The answer lies within PepsiCo's leading portfolio of brands, including the eponymous Pepsi, Lay's, Gatorade, Mountain Dew, SodaStream, and Quaker Oats, that each generates $1 billion-plus in annual revenue. As a result of these leading brands, PepsiCo's products are consumed more than 1 billion times every day by people in over 200 countries and territories throughout the world.
PepsiCo recorded a 2.5% increase in its convenient food volumes in 2021, while the company posted an even better 10% bump in beverage volumes. The company's total organic volumes were 4% higher in 2021 than the year-ago period. And the effective 5% net price hikes that PepsiCo passed along to consumers were another piece of how the company logged double-digit net revenue growth in 2021. PepsiCo's acquisitions of Pioneer Foods and Be & Cheery chipped in another 2% to net revenue growth, and favorable currency translations were responsible for the remaining 1% of net sales growth.
PepsiCo's non-GAAP (adjusted or core) diluted earnings per share (EPS) surged 13.4% higher to $6.26 in 2021. How did the company accomplish this? Two factors led to this earnings growth. Aside from PepsiCo's higher net revenue base, the company's non-GAAP net margin edged a single basis point higher to just over 10.9% in 2021. The other reason for the company's earnings growth was a 0.2% reduction in PepsiCo's weighted average outstanding share count to 1.39 billion, which was due to share buybacks executed during the year.
Analysts anticipate that PepsiCo's momentum will continue but to a lesser extent in the medium term. This is reflected by the fact that analysts are forecasting 8% annual core EPS growth over the next five years.
2. PepsiCo will soon qualify as a Dividend King
PepsiCo had a strong showing in 2021 and has an encouraging outlook for the foreseeable future. That makes it clear why the company's board of directors announced a 7% raise in the annualized dividend per share to $4.60. The dividend increase will begin with the quarterly dividend that is expected to be paid in June. Once paid, this will mark the stock's 50th consecutive year of dividend raises, which will make it a Dividend King.
PepsiCo's dividend payout ratio of 67% for 2021 is only a tad high, but still quite manageable. That's why dividend growth will probably slightly lag earnings growth over the next several years. But even so, I believe the company can keep handing out 7% annual dividend increases to get that payout ratio just below 65% by the end of 2026.
Along with PepsiCo's market-beating 2.9% dividend yield, this is an enticing blend of yield and growth prospects.
3. The stock is reasonably valued
The third reason to consider buying PepsiCo is that the inflation-proof stock looks to be sensibly priced.
PepsiCo is trading at a forward price-to-earnings ratio of 21.9, slightly below the nonalcoholic beverages industry average of 22.7. Even considering that PepsiCo's 8% annual earnings growth potential is a bit lower than the industry average of 9%, the steady nature of the stock arguably deserves a premium. PepsiCo's trailing-12 months dividend yield of 2.7% is also essentially in line with the 13-year median of 2.8%, which is further confirmation that the stock is a buy for dividend growth investors.
Kody Kester owns PepsiCo Inc. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
FAQs
Stock Price Forecast
The 17 analysts offering 12-month price forecasts for PepsiCo Inc have a median target of 201.00, with a high estimate of 220.00 and a low estimate of 178.00. The median estimate represents a +9.10% increase from the last price of 184.23.
Is PepsiCo a good stock to buy? ›
Stock Price Forecast
The 17 analysts offering 12-month price forecasts for PepsiCo Inc have a median target of 201.00, with a high estimate of 220.00 and a low estimate of 178.00. The median estimate represents a +9.10% increase from the last price of 184.23.
Is Pepsi stock a good buy 2023? ›
PepsiCo's (NASDAQ: PEP) stock has a lot going for it in 2023. Its last few earnings updates showed that it could boost sales and earnings even as shoppers spent less freely on groceries. And the consumer staples giant is positioned for growth through what could be a rocky time for the economy.
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Is Pepsi a buy or sell stock? ›
PepsiCo has received a consensus rating of Hold. The company's average rating score is 2.33, and is based on 5 buy ratings, 6 hold ratings, and 1 sell rating.
Does PepsiCo have good dividends? ›
PepsiCo Has A Solid Track Record
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $2.15 in 2013, and the most recent fiscal year payment was $5.06. This implies that the company grew its distributions at a yearly rate of about 8.9% over that duration.
What is the future of Pepsi stock? ›
On average, Wall Street analysts predict that Pepsico's share price could reach $192.50 by Apr 27, 2024. The average Pepsico stock price prediction forecasts a potential upside of 6.88% from the current PEP share price of $180.11.
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6 more rowsJun 1, 2023
Since PepsiCo has less exposure to the more expensive channels, it is less affected during recessions. 2020 showcased this difference when sales for Coca-Cola decreased by 11.4%, while PepsiCo's increased by 4.8%.
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Jun 4, 2023
PepsiCo maintained stable EBIT margins over the last year, all while growing revenue 8.6% to US$86b. That's a real positive. In the chart below, you can see how the company has grown earnings and revenue, over time.
Is Pepsi losing market share? ›
Pepsi has been slowly losing market share in the carbonated soft drink category for years, standing at 8.7 percent in 2020. In the beverage segment, PepsiCo's main challenger has always been Coca-Cola. As a brand, Coca-Cola had a value of over five times that of Pepsi.
Why is Pepsi stock rising? ›
PepsiCo beat earnings and revenue expectations in the first quarter, helped by resilient demand and price hikes.
Is co*ke or Pepsi a better dividend stock? ›
The big dividend number
That makes sense in many ways, since the yield represents a direct cash return on an investment. From this perspective, the Coca-Cola-versus-PepsiCo comparison is pretty simple. Coca-Cola's nearly-3.1% yield easily beats out the 2.6% on offer from PepsiCo.
Who pays better dividends co*ke or Pepsi? ›
Taking into consideration both PepsiCo's lower Payout Ratio and its higher Dividend Growth Rate [CAGR] over the past 5 years when compared to Coca-Cola, we identify strong indicators that PepsiCo is the slightly more attractive pick for Dividend Income and Dividend Growth Investors.
What's the best dividend paying stocks? ›
Comparison Results
| Name | Price | Price Change |
|---|
| MO Altria Group | $45.53 | $0.31 (0.69%) After 0.15% |
| T AT&T | $15.93 | $0.02 (-0.13%) After 0% |
| XRX Xerox | $15.24 | $0.15 (0.99%) After 1.57% |
| IBM International Business Machines | $136.42 | $1.12 (0.83%) After 0.16% |
5 more rowsPepsiCo Inc quote is equal to 184.090 USD at 2023-06-04. Based on our forecasts, a long-term increase is expected, the "PEP" stock price prognosis for 2028-05-24 is 265.879 USD. With a 5-year investment, the revenue is expected to be around +44.43%. Your current $100 investment may be up to $144.43 in 2028.
Is Pepsi growing or Shrinking? ›
PepsiCo's Revenue Growth Is Better
Its sales grew at an average growth rate of 7.2% to $79.5 billion in 2021, compared to $64.7 billion in 2018, while Colgate-Palmolive saw its sales rise at an average rate of 3.9% to $17.4 billion in 2021, vs. $15.5 billion in 2018.
Has Pepsi stock ever split? ›
PepsiCo stock previously split three-for-one in 1990, 1986 and 1977. The stock split two-for-one in 1967. A $1,000 investment in PepsiCo stock when the company was established in 1965 is today worth, with reinvested dividends, over $100,000.
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2 more rowsJun 1, 2023
PepsiCo 1 Year Total Returns (Daily): 11.02% for June 7, 2023.
What is the average annual return for Pepsi stock? ›
Over half a decade, PepsiCo managed to grow its earnings per share at 7.4% a year. This EPS growth is reasonably close to the 9% average annual increase in the share price.
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What is the 5 year forecast for PepsiCo stock? ›
PepsiCo Inc quote is equal to 181.210 USD at 2023-06-12. Based on our forecasts, a long-term increase is expected, the "PEP" stock price prognosis for 2028-06-02 is 267.657 USD. With a 5-year investment, the revenue is expected to be around +47.71%. Your current $100 investment may be up to $147.71 in 2028.
What is the growth potential of PepsiCo? ›
PepsiCo is forecasted to grow earnings and revenue by 9.7% and 4.5% per annum respectively. EPS is expected to grow by 10%. Return on equity is forecast to be 53.1% in 3 years.
How often does PepsiCo pay dividends? ›
PepsiCo has paid consecutive quarterly cash dividends since 1965, and 2023 marks the company's 51st consecutive annual dividend increase. PepsiCo products are enjoyed by consumers more than one billion times a day in more than 200 countries and territories around the world.
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PepsiCo stock previously split three-for-one in 1990, 1986 and 1977. The stock split two-for-one in 1967. A $1,000 investment in PepsiCo stock when the company was established in 1965 is today worth, with reinvested dividends, over $100,000.
Is Pepsi a good long term investment? ›
PepsiCo remains a solid long-term performer. The company has seen solid growth in 2022, albeit driven by pricing rather than volumes.
What is the success factor of Pepsi? ›
Overall, Pepsi's success can be attributed to its ability to adapt to changing consumer preferences, innovate, and expand its business through strategic acquisitions and global expansion.
Comparison Results
| Name | Price | Price Change |
|---|
| MO Altria Group | $45.53 | $0.31 (0.69%) After 0.02% |
| T AT&T | $15.93 | $0.02 (-0.13%) After 0% |
| XRX Xerox | $15.24 | $0.15 (0.99%) After 0% |
| IBM International Business Machines | $136.42 | $1.12 (0.83%) After 0.04% |
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Dividend Summary
| Status | Type | Pay date |
|---|
| Paid | Quarterly | 30 Sep 2022 |
| Paid | Quarterly | 30 Jun 2022 |
| Paid | Quarterly | 31 Mar 2022 |
| Paid | Quarterly | 07 Jan 2022 |
49 more rowsThe only factor affecting the company's turnover is the recent trend of consumers willing to avoid soda, caffeinated or sugar-based drinks and their migration to healthier products. Still, PepsiCo continuously works on innovating its product offering to cover this segment as well.
Is Coca-Cola stock better than Pepsi? ›
Considering both stocks trade at the same valuation, I would argue that Coca-Cola is a better value because it is far more profitable. If you're a dividend investor, you should also love the longer runway Coca-Cola has for dividend growth moving forward.
