PepsiCo, Inc. (PEP) in Harrison, N.Y., is a well-established player in the beverage industry, with a $229.95 billion market capitalization. PEP’s shares have gained 14.2% in price over the past year and 12.1% year-to-date to close their last trading session at $166.31. The stock is trading above its 50-day and 200-day moving averages and just below its 52-week high of $167.29, which it hit on December 6.

The company’s revenue topped analysts’ expectations in its last reported quarter. Its net sales rose 11.6% to $20.19 billion, versus a $19.39 billion  consensus estimate. Its adjusted earnings per share were $1.79, topping the $1.73 consensus estimate by 3.5%. However, management cited supply chain disruptions and inflationary pressures on labor, commodities, and transportation to have weighed down the company’s earnings. PEP also raised its full-year organic revenue growth forecast to 8%, up from its earlier forecast of 6% growth.

The company is a dividend aristocrat with a strong dividend growth history. PEP’s $4.30 annual dividend yields 2.59% at the current share price. On November 18, PEP declared a $1.08 per share quarterly dividend, representing a 5% increase versus the year-earlier period. The dividend is payable on January 7, 2022. This year marked the company’s 49th consecutive annual dividend increase. PEP’s dividend payouts have increased at a 5.8% CAGR over the past three years and a 7.5% CAGR over the past five years. PEP also has a solid cash position, which facilitates the returns to its shareholders. Its trailing-12-months levered free cash flow, and net operating cash flow came in at $4.29 billion and $11.12 billion, respectively.

Here is what could shape PEP’s performance in the near term:

Higher-Than-Industry Profit Margins

PEP’s 53.93% gross profit margin is 56% higher than the 34.56% industry average. Also, its  10.62% levered FCF margin is 99.4% higher than the 5.33% industry average.

Moreover, PEP’s 55.47%, 8.73%, and 12.82% respective ROE, ROA, and ROTC are 399.5%, 90.1%, and 87.7% higher than the industry averages.

Stable Growth Prospects

Analysts expect PEP’s revenues to increase 7.9% in the current quarter and 7.2% in the next quarter. Also, its revenue is expected to grow 11.3% year-over-year to $78.29 billion in the current year. The company’s EPS is expected to rise 2.7% in the current quarter and 6.6% in the next quarter. And the Street expects PEP’s EPS to rise 13% year-over-year to $6.24 in the current year. The company’s EPS is expected to grow 9.8% per annum over the next five years.

POWR Ratings Show Promise

PEP has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Quality. Its higher-than-industry profit margins justify this grade.

PEP has a B grade for Stability, which is consistent with its 0.65 beta.

Of the 36 stocks in the Beverages industry, PEP is ranked #12.

Beyond what I have stated above, one can also view PEP’s grades for Value, Sentiment, Momentum, and Growth here.

View the top-rated stocks in the Beverages industry here.

Bottom Line

With the holiday season almost here, PEP has gained significantly over the past few days, hitting its 52-week high lately. The company has a solid dividend growth history and stable cash flows. Moreover, the stock is relatively stable.  So, for investors looking to hedge against the current market volatility related to the omicron variant and to secure a stable stream of income, we think PEP could be a solid buy.

How Does PepsiCo, Inc. (PEP) Stack Up Against its Peers?

PEP has an overall POWR Rating of B. However, one could also check out these other stocks within the Beverages industry with A (Strong Buy) rating: Coca-Cola Consolidated, Inc. (COKE), Compania Cervecerias Unidas, S.A. (CCU), and Suntory Beverage & Food Ltd (STBFY).

PEP shares were trading at $167.90 per share on Friday morning, up $1.59 (+0.96%). Year-to-date, PEP has gained 16.52%, versus a 26.55% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

More Resources for the Stocks in this Article