Now is not the time to buy PepsiCo stock

We believe there are a few things to fear in PEP stock given its overall Weak operating performance and financial condition. In addition, keeping in mind its High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $205 Bil in market cap, PepsiCo provides a wide range of beverages, snacks, cereals, and convenient foods, including dips, cheese-flavored snacks, spreads, rice, pasta, mixes, and syrups.

[1] Valuation Looks High

This table highlights how PEP is valued vs broader market. For more details see: PEP Valuation Ratios

[2] Growth Is Inconsistent

• PepsiCo has seen its top line grow at an average rate of 4.0% over the last 3 years
• Its revenues have fallen -0.3% from $92 Bil to $92 Bil in the last 12 months
• Also, its quarterly revenues grew 1.0% to $23 Bil in the most recent quarter from $23 Bil a year ago.

This table highlights how PEP is growing vs broader market. For more details see: PEP Revenue Comparison

[3] Profitability Appears Moderate

• PEP last 12 month operating income was $12 Bil representing operating margin of 13.5%
• With cash flow margin of 13.3%, it generated nearly $12 Bil in operating cash flow over this period
• For the same period, PEP generated nearly $7.6 Bil in net income, suggesting net margin of about 8.2%

This table highlights how PEP profitability vs broader market. For more details see: PEP Operating Income Comparison

[4] Financial Stability Looks Strong

• PEP Debt was $51 Bil at the end of the most recent quarter, while its current Market Cap is $205 Bil. This implies Debt-to-Equity Ratio of 25.1%
• PEP Cash (including cash equivalents) makes up $8.0 Bil of $105 Bil in total Assets. This yields a Cash-to-Assets Ratio of 7.6%

[4] Downturn Resilience Is Moderate

PEP saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• PEP stock fell 19.4% from a high of $196.12 on 12 May 2023 to $158.08 on 12 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $183.11 on 16 May 2024 , and currently trades at $149.55

 
2020 Covid Pandemic

• PEP stock fell 29.3% from a high of $146.99 on 14 February 2020 to $103.93 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 29 December 2020

 
2008 Global Financial Crisis

• PEP stock fell 42.4% from a high of $79.57 on 10 January 2008 to $45.81 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 2 April 2013

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.