Beverages giant PepsiCo, Inc. (PEP) defied macroeconomic hurdles and surpassed consensus estimates in its latest reported quarter. It beat revenue estimates by 5.5% and EPS estimates by 6.7%. Moreover, the stock got upgraded by Wells Fargo in October.
According to Ramon Laguarta, PEP’s Chairman and CEO, “Our strong results demonstrate that the investments we have made towards becoming an even Faster, even Stronger, and even Better company with pep+ at the center of everything we do are working.”
In addition, solid demand in the beverages industry is expected to help PEP flourish ahead of the holiday season. The global beverages industry is projected to reach $1.69 trillion by 2028. Also, the stock has an impressive dividend-paying record.
PEP has paid dividends for 49 consecutive years. Its dividend payouts have increased at a 5.7% CAGR over the past three years and a 7.4% CAGR over the past five years. Its current dividend yield is 2.54%, while its four-year average yield is 2.80%.
PEP has gained 3.6% over the past month to close the last trading session at $181.33. It has gained 4.4% year-to-date and 11% over the past year.
Here is what could shape PEP’s performance in the near term:
Solid Financials
PEP’s net revenue came in at $21.97 billion for the third quarter that ended September 3, 2022, up 8.8% year-over-year. Its gross profit came in at $11.66 billion, up 8% year-over-year. Also, its operating profit came in at $3.35 billion, up 6.1% year-over-year.
Moreover, its non-GAAP net income came in at $2.73 billion, up 10% year-over-year, while its non-GAAP EPS came in at $1.97, up 10.1% year-over-year.
Favorable Analyst Expectations
Analysts expect PEP’s revenue to increase 7.1% year-over-year to $85.11 billion in 2022 and 3.2% year-over-year to $87.88 billion in 2023. Its EPS is expected to increase 8.1% year-over-year to $6.77 and 7.5% year-over-year to $7.28 in 2023. The stock surpassed EPS estimates in all four trailing quarters.
Robust Profitability
PEP’s trailing-12-month gross profit margin of 53.24% is 68.4% higher than the industry average of 31.62%. Its trailing-12-month EBITDA margin of 18.12% is 47.9% higher than the industry average of 12.25%, while its trailing-12-month net income margin of 11.61% is 178% higher than the industry average of 4.18%.
Furthermore, PEP’s trailing-12-month ROCE, ROTC, and ROTA of 55.75%, 13.61%, and 10.28%, compared with the industry averages of 10.84%, 6.18%, and 3.93%, respectively.
POWR Ratings Reflect Promising Outlook
PEP has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PEP has an A grade for Quality, consistent with its higher-than-industry profitability margins.
Also, it has a B grade for Growth and Stability, in sync with its solid financials in the latest reported quarter and its beta value of 0.60, respectively.
In the 34-stock Beverages industry, PEP is ranked #10. The industry is rated A.
Click here for the additional POWR Ratings for PEP (Value, Momentum, Sentiment).
View all the top stocks in the Beverages industry here.
Bottom Line
PEP registered robust top and bottom-line growth in its latest quarter. Moreover, it’s trading near the 52-week high of $183.58, which it hit on November 2, 2022. Given its profitability and optimistic industry outlook, I think PEP might be a wise addition to your portfolio.
How Does PepsiCo, Inc. (PEP) Stack up Against Its Peers?
While PEP has an overall POWR Rating of B, one might consider looking at its industry peers, Coca-Cola Consolidated, Inc. (COKE), Embotelladora Andina S.A. (AKO.B), and Carlsberg A/S (CABGY), which have an overall A (Strong Buy) rating.
PEP shares were trading at $184.42 per share on Monday morning, up $3.09 (+1.70%). Year-to-date, PEP has gained 8.33%, versus a -16.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
The No. 1 Beverage Stock to Buy in November StockNews.com
