Pepsi Co, Inc. (NASDAQ: PEP)
Pepsi Co, Inc. is one of the largest food and beverage companies in the world, operating in over 200+ since it was founded in 1965 when the Pepsi-Cola company merged with Frito-Lay and listed on the NYSE. Although its popularity makes the company a household name now, having released a strong second-quarter results has increased mentions of the company by 135% over the last day. This prompted investors to wonder what gave the company such positive hype. Currently, Pepsi Co. shares trade at $171.12.
A combination of solid financials, market leadership and ever-growing demand make Pepsi Co. a fundamentally great company to invest in, here are some of the reasons you might want to consider taking a position in the company now.
Given a great first quarter, analysts expected to see signs of expanding revenue into the second half of the year. Pepsi's Tuesday morning report lived up to the hype. The company boosted sales volume even as its prices jumped and consequently raised its already bullish full-year 2022 outlook.
In addition, organic sales jumped 13%. Pepsi had been growing at an annual pace of about 5% before the pandemic. It nearly tripled that prior expansion rate this quarter, even though sales soared in the year-ago period. The 5% reported sales increase trounced expectations for a 1% uptick making everyone very hopeful.
PepsiCo's Q2 2022 core non-GAAP earnings per share (EPS) of $1.86 represented a year-over-year 8.1% increase and beat analysts’ consensus estimate of $1.74.
The company's quarterly revenue of $20.23 million also rose 5.2% and beat Wall Street’s $19.51 billion estimate.
Operating profit rose 10% after accounting for currency exchange rate shifts, which translated into only a modest drop in profitability. Despite rising costs of transport, labour and manufacturing, profits still expanded by 9%.
Not only is it the investors and analysts, Pepsi entered the year targeting roughly 6% organic growth following soaring results in 2021. Management boosted that target to around 8% last quarter and this week lifted it again to roughly 10%.
Lastly, the company will return $8 billion in cash to shareholders this year, mainly through dividend payments which is a good sign for those looking to become shareholders for the long run.
Although Pepsi Co, may seem like it’s an ideal investment, nothing comes without potential drawbacks. Here are some of the reasons it might not be the best time to invest in Pepsi Co.
PepsiCo raised its product prices by 12% in Q2. Investors might be worried about the impact this could have on sales given that there’s only so long that customers can stomach price hikes of this kind.
The stock has a price-to-operating-income multiple of 22 and a price-to-free-cash-flow of 34. This isn't cheap for a company with slow top-line growth like Pepsi.
The driving force behind PepsiCo's results was a demonstration of its pricing power, as consumers kept purchasing its products despite price hikes. This indicates that the company is fairly insulated from inflation making it a great purchase in the immediate future. However, there are still worries that this price hike might not be sustainable and the stock is still fairly expensive. Despite this, the company has a positive outlook for the next year and will be providing the returns to support it.
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