Growing fears of an economic slowdown have recently led to market volatility. Ahead of the fact that the uncertainties could linger for a while, the fundamentally strong PepsiCo (PEP) stock could be a sensible addition to the long-term portfolio for investors planning to retire early. Read more….
In the current uncertain macroeconomic environment, investors tend to add stocks of long-term stable companies that provide stable returns in the form of dividends to hedge against a potential market downturn. Therefore, PepsiCo, Inc. (FUT) can be a wise choice for investors for reasons mentioned in the article.
In addition to the Fed’s aggressive stance to curb inflation, recent bank collapses have led to a “credit crunch.’ Pre-existing recession fears were reignited experts expressing their concerns about slowing economic growth in the coming months.
Such extrapolations have dashed investors’ hopes. To hedge against such uncertainties, investors should therefore opt for stable stocks with stable returns. PEP is a popular food and beverage company operating in seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, the Middle East and South Asia; Asia Pacific, Australia and New Zealand; and the Chinese region.
On February 1, 2023, PEP increased its quarterly dividend by 7% over last year’s value to $1.15 per share, paid to shareholders on March 31, 2023. PEP has paid consecutive quarterly cash dividends since 1965, and 2022 marked the company’s 50th consecutive annual dividend increase.
PEP pays an annual dividend of $4.60 per share. This translates into a return of 2.52% at the current price level. Dividends have grown at 6.4% and 7.4% CAGR over the past three and five years, respectively. It’s the four-year average dividend yield is 2.75%.
Over the past six months, the stock is up 11.7% to close out the last trading session at $182.30. Moreover, it is up 5.2% in the past month. It is trading higher than its $174.35 50-day moving average and $174.46 200-day moving average.
Here are the factors that could affect PEP’s performance in the coming months:
Solid finances
PEP net sales were $28 billion for the fiscal fourth quarter ended December 31, 2022, up 10.9% year over year. Non-GAAP gross profit increased 11.5% year over year to $14.71 billion. It is also non-GAAP operating profit came in at $2.93 billion, up 6.9% year-over-year.
Non-GAAP net income attributable to PEP increased 8.5% year over year to $2.31 billion. Non-GAAP net income attributable to PEP per common share grew 9.2% year over year to $1.67.
Analysts’ optimistic estimates
For the fiscal second quarter ending June 2023, analysts expect PEP’s revenue to grow 5.6% year over year to $21.37 billion. Earnings per share are estimated to grow 7.6% year-over-year to $2 for the same quarter. PEP outperformed EPS and revenue estimates in all four subsequent quarters, which is impressive.
Robust profitability
PEP’s 12-month EBIT margin of 14.18% is 85.7% higher than the industry average of 7.64%. Also the net profit margin over 12 months and levied FCF margin of 10.31% and 7.69% are 180.5% and 189.7% higher than industry averages of 3.68% and 2.65% respectively.
PEP’s 12-month ROCE, ROTC, and ROTA of 53.69%, 13.06%, and 9.67% are 408.4%, 106.6%, and 131.9% higher than the industry average of 10.56, respectively %, 6.32% and 4.17%.
POWR ratings reflect promising outlook
PEP’s strong fundamentals are reflected in its POWR ratings. It has an overall rating of B, which is equivalent to Buy in our own rating system. The POWR ratings are calculated by considering 118 different factors, with each factor optimally weighted.
Our proprietary rating system also evaluates each stock based on eight different categories. PEP has a B rating for stability, consistent with the five-year beta of 0.54. It also has a B class front Sentiment, in sync with estimates the optimistic analyst.
Within the A rating Drinks industry, it ranks number 19 out of 36 stocks.
click here for the additional POWR assessments for growth, momentum, sentiment and value for PEP.
View all the top stocks in the beverage industry here.
It boils down
In light of current market dynamics, the PEP beverage stock appears well positioned to witness significant growth due to the non-cyclical demand the company faces. In addition, given the company’s solid financials and reliable dividend payments, investors planning to retire early can purchase the stock to ensure stable passive income.
How does PepsiCo Inc. (PEP) Stacking up against his peers?
While PEP has an overall rating of B, one might consider looking at its peers, Coca-Cola Consolidated, Inc. (COKE), Coca-Cola FEMSA, SAB de CV (KOF), and Emboteladora Andina SA (AKO.B), which have an overall A rating (Strong Buy).
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PEP shares traded at $181.27 per share Monday morning, down $1.03 (-0.57%). Year-to-date, PEP is up 1.02%, versus a 7.77% increase in the benchmark S&P 500 index over the same period.
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About the Author: Sristi Suman Jayaswal
Stock market dynamics piqued Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. After completing a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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