Still Room For Growth From PepsiCo’s Q3?

PEP: PepsiCo logo

PepsiCo (NYSE: PEP) is scheduled to report its Q3 2022 results on Wednesday, October 12. We expect Pepsi to likely report revenue and earnings slightly below the consensus estimates, as forex headwinds weigh on the company’s performance. That said, our forecast indicates that PEP stock has some upside, as discussed below. Our interactive dashboard analysis of PepsiCo Earnings Preview has additional details.

(1) Revenues expected to be below the consensus estimates

  • Trefis estimates PepsiCo’s Q3 2022 revenues to be around $20.6 billion, reflecting a low single-digit y-o-y growth, but slightly below the $20.8 billion consensus estimate. 
  • The company should continue to benefit from better price realizations, although volume growth may remain tepid.
  • The more considerable headwind for PepsiCo will likely be forex headwinds, given the strengthening dollar.
  • Looking at Q2 2022, the company saw its organic sales grow 13% y-o-y to $20.2 billion. However, forex headwinds and the impact of acquisitions & divestitures resulted in a net sales growth to be just 5%. This 12% organic growth was driven by a 1% increase in overall volume and a 12% increase in effective pricing.
  • Our PepsiCo Revenues dashboard details the company’s top-line trajectory and its comparison with peers.
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(2) EPS likely to be marginally below the consensus estimates

  • PepsiCo’s Q3 2022 adjusted earnings per share (EPS) is expected to be $1.82 per Trefis analysis, marginally below the consensus estimate of $1.84.
  • The company’s adjusted net income of $2.6 billion in Q2 2022 reflected an 8% rise from its $2.4 billion figure in the prior-year quarter. The sales growth was partly offset by operating margin contraction.
  • The company’s operating margins contracted 602 bps y-o-y to 10.3% in Q2, primarily due to $1.4 billion associated with the impairment of intangible assets. On an adjusted basis, operating margins expanded 36 bps to 16.9%.
  • Our dashboard on PepsiCo’s Operating Income has more details.
  • For the full-year 2022, we expect the adjusted EPS to be higher at $6.72, compared to the $6.25 figure in 2021.

(3) PEP stock looks like it has some room for growth

  • We estimate PepsiCo’s Valuation to be around $183 per share, reflecting a 12% upside from the current market price of $163.
  • This represents a forward P/E multiple of 27x for the company based on our 2022 EPS forecast of $6.72.
  • The P/E multiple above compares with the last three-year average of 25x.

While PEP stock looks like it has some room for growth, it is helpful to see how PepsiCo’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for PepsiCo vs. Corning.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Oct 2022
MTD [1]
YTD [1]
Total [2]
 PEP Return 0% -6% 56%
 S&P 500 Return 4% -21% 67%
 Trefis Multi-Strategy Portfolio 100% -22% 211%

[1] Month-to-date and year-to-date as of 10/6/2022
[2] Cumulative total returns since the end of 2016

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