PepsiCo recently reported its Q1 results, with revenues and earnings exceeding expectations. The company reported revenue of $18.3 billion and adjusted earnings of $1.61 per share, compared to estimates of $18.2 billion and $1.55. Despite a strong Q1, PepsiCo’s stock is currently trading around $180, and we believe it is appropriately priced at this level. In this article, we discuss PepsiCo’s stock performance, key takeaways from its recent results, and valuation.
PEP stock has seen gains of 15% from early January 2021 to around $175 now, compared to a 35% increase for the S&P 500 over the same period. However, the stock’s performance has been inconsistent, with returns of 17% in 2021, 4% in 2022, and -6% in 2023. In comparison, the S&P 500 had returns of 27% in 2021, -19% in 2022, and 24% in 2023. PepsiCo has underperformed the S&P in 2021 and 2023, making it challenging for individual stocks to consistently beat the benchmark index.
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With an uncertain macroeconomic environment, including high oil prices and elevated interest rates, PepsiCo could face challenges similar to those experienced in 2021 and 2023. From a valuation perspective, PEP stock appears to be appropriately priced at around $178, with a valuation estimate of $186 per share based on a 23x P/E multiple and expected earnings of $8.15 per share for the full year 2024.
PepsiCo’s Q1 revenue of $18.25 billion reflects a 3% organic growth driven by a 5% increase in pricing, offsetting a 2% decline in volume. All segments saw sales rise except for the Quaker Foods segment, which was impacted by a recall of over three dozen Quaker Oats products due to salmonella contamination concerns. Despite this, the company’s consolidated operating profit rose 3% and operating margin expanded by 20 bps, leading to a 7% year-over-year increase in adjusted earnings to $1.61 per share.
Looking ahead, PepsiCo expects at least a 4% increase in revenue on an organic basis and at least an 8% increase in adjusted earnings on a constant currency basis. While the company posted a solid Q1, challenges such as the Quaker recall and higher pricing for its products may impact demand in the near term. Overall, PepsiCo is maintaining a positive outlook for the future, but it remains to be seen how external factors will shape its performance in the coming months.
