PepsiCo, Inc. (PEP) delivered a mixed bag of results in the third quarter, reporting adjusted earnings per share (EPS) that surpassed analyst expectations but falling short on revenue. The company reported adjusted EPS of $2.31, beating the consensus estimate of $2.29. However, revenue of $23.319 billion missed the consensus estimate of $23.825 billion.
Despite the revenue miss, PepsiCo remains optimistic about the future. For 2024, the company anticipates a low-single-digit increase in organic revenue and continues to expect at least an 8% increase in core constant currency EPS. This translates to an anticipated 2024 adjusted EPS of at least $8.15, a 7% year-over-year increase.
BofA Securities analyst Bryan D. Spillane maintains a ‘Buy’ rating and a $185 price target on PEP shares. He notes that the second half of the year typically accounts for over half of total revenue, and the company’s guidance suggests a possible organic growth range of -1% to +3% in the fourth quarter.
Spillane acknowledges that PepsiCo is likely relying on higher productivity than initially planned to achieve its reiterated EPS target despite lowering its organic sales guidance. He also observes that the volume performance in the third quarter might necessitate additional support in the coming year.
However, Spillane remains positive about PEP’s future performance. He expects the stock to perform well if market share improves, particularly given the remedial actions already in place to address volume weakness. The analyst also justifies PEP’s premium valuation of 20x over non-alcoholic beverage peers, attributing it to the company’s strengthened position and pricing power amidst ongoing inflationary pressures.
Investors seeking exposure to PEP can consider ETFs like the iShares U.S. Consumer Staples ETF (IYK) and the First Trust Nasdaq Food & Beverage ETF (FTXG). As of the last check on Tuesday, PEP shares were up 0.89% at $168.69.
