Quenching Your Investment Thirst: PepsiCo Stock Analysis

Ticker: PEP
Sector: Consumer Defensive
Industry: Beverages – Non-Alcoholic
Headquartered: New York, USA
Moat: Wide – Intangible Asset- Brand, Pricing, Scale

Action at date of this post

Accumulate as of 3.5.2024
This is technically a buy opinion. Accumulate means if you are an investor that buys periodically then keep buying. If you do not own it but are looking to buy this is an indication to open a position of no more than 25% of your intended, total position.

Pepsi Corporate Overview

Pepsi, a globally renowned beverage brand, stands as one of the most iconic names in the soft drink industry. Established in 1893 by Caleb Bradham in New Bern, North Carolina, Pepsi has grown into a multinational powerhouse, offering a diverse range of carbonated and non-carbonated beverages. The brand’s flagship product, Pepsi Cola, is celebrated for its refreshing taste and has become a staple in the lives of millions worldwide. The company’s diversified product portfolio, including popular brands such as Pepsi, Mountain Dew, Lay’s, Gatorade, and Tropicana, provides a robust foundation for revenue generation across various consumer segments. PepsiCo’s strategic focus on innovation and adapting to changing consumer preferences has allowed it to maintain a competitive edge in the market.

Financially, PepsiCo has consistently delivered strong results, with a healthy balance sheet and consistent dividend payouts, making it an appealing choice for income-oriented investors. The company’s ability to generate steady cash flows and implement cost-effective strategies has contributed to its long-term success.

Pepsi Segment Analysis

Pepsi organizes itself into 7 reportable segments which are as follows: (1)Frito-Lay North America, (2)Quaker Foods North America, (3)PepsiCo Beverages North America, (4)Latin America, (5)Europe, (6)AMESA (Africa, Middle East and South Asia), (7)APAC (Asia, Pacific Australia, New Zealand and China). 

Pepsi Moat Source

Pepsi’s wide moat status in underpinned on multiple fronts. The massive revenue base that the company works from gives it bargaining power and thus lower operation costs. The scale of the company’s distribution network allows it to get products to retailers faster and at a lower cost. Then there is the brand that commands significant customer loyalty. 

Pepsi Growth Outlook

Pepsi’s dominance cannot be overstated. Pepsi ranks number one, globally, in savory snacks, second in carbonated soda drinks and third in energy drinks. It’s portfolio of products ranges from Pepsi to Doritos to Ruffles to Tostitos to Gatorade to Quaker Oats. While 2023 was a tough year where most of the sales growth came from price increases, the company has a number of levers to pull to bolster growth. The company has outwardly stated that it will be investing more in innovation and marketing. The company also plans to trim some of the portfolio to focus its spending on profitable brands. 

Harkening back to the company’s moat sources, the sheer size of the company allows it to procure raw materials at significant cost savings. 

The company’s previous and continued investment in harnessing data has paid off in streamlining resource planning. Quicker more efficient movements of products and materials has (and will continue) to flow to the bottom line. The company has also spent heavily on its direct-to-store logistics system that helps retailers with inventory, stocking and replenishment. These types of investments is how Pepsi can command the too critical shelf allocation and placement. For the brands in its portfolio, it’s critical to stay top of mind and within easy reach for consumers. 

The Numbers

With gross profit margins consistently in the 50% region and solid free cash flow, the company has the resources to maintain its competitive positioning. ROIC and ROCE is consistently in the high teens or north allowing the company to earn a solid return above its cost of capital. A strong balance sheet with a dividend that has grown every year for the last 52 years means that shares will always be in demand. 

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing, the author holds a position in McDonalds.