By Chantal Marx & Paul Clark
PepsiCo runs a complementary beverage and convenience foods portfolio that includes Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream. It oversees the manufacturing, distribution, and marketing of its products that are sold in over 200 countries globally.
PepsiCo was formed in 1965 with the merger of the Pepsi-Cola Company and Frito-Lay, Inc. The company has made several notable acquisitions over the last few decades including Tropicana Products in 1998, the Quaker Oats Company in 2001, Pepsi Bottling Group and PepsiAmericas in 2010, SodaStream in 2018 and Pioneer Foods in 2020. Its largest divestments came in 1997 when it spun out Tricon Global Restaurants (no known as Yum! Brands) that included brands like Pizza Hut, Taco Bell and KFC; and in 2021 when it sold Tropicana to a French private equity firm.
In FY24, Convenient Food made up 58% of sales and Beverage accounted for the balance. North America is the biggest geography for PepsiCo and contributed 60% to revenue in the last financial year.
The company reports across six segments but generally three main areas are highlighted being Pepsi Beverages North America (PBNA), Pepsi Foods North America (PFNA), and International. Recently, growth has been driven by the company's International business (five-year compound annual growth rate [CAGR]: +10%). PBNA (five-year CAGR: +7%) has outpaced growth in PFNA (five-year CAGR: +4%).
For reporting purposes, International is split into four segments being Europe, Middle East and Africa (EMEA, 18% of group revenue), Latin America Foods (LatAm Foods, 12% of group revenue), International Beverages Franchise (5% of group revenue), and Asia Pacific Foods (5% of revenue).
For reporting purposes, International is split into four segments being Europe, Middle East and Africa (EMEA, 18% of group revenue), Latin America Foods (LatAm Foods, 12% of group revenue), International Beverages Franchise (5% of group revenue), and Asia Pacific Foods (5% of revenue).
PepsiCo has prioritised shareholder returns
PepsiCo has a history of consistently paying high and growing dividends to shareholders - this is expected to persist. For FY25 though FY28, the dividend is expected to grow in the mid-single digits, broadly matching earnings development. It has increased its dividend payout ratio over time.
Shareholder returns are complimented by share repurchases over the last 25 years. The company plans to buy back $1 billion worth of shares in 2025 - broadly in line with the 2024 figure.
The company remains acquisitive - with a focus on health alternatives
In mid-May PepsiCo announced that it has closed the acquisition of fast-growing low calorie prebiotic soda brand, poppi, for $1.95 billion. The company viewed this as a further step in the ongoing transformation of its portfolio to address evolving consumer preferences.
In January, the company completed the acquisition of Siete Foods for $1.2 billion. The Siete portfolio spans a variety of "better-for-you products" catering for a variety of dietary needs and preferences, including grain-free tortillas, enchilada sauces, taco seasonings, botana sauces, Mexican cookies, vegan beans, grain-free puffs, tortilla chips, potato chips, and salsas.
Financials
Summary investment case
Risks
Consensus considerations
Consensus is neutral-to-positive on the stock with 31% of analysts having a BUY rating on PepsiCo, 65% with HOLD ratings and only 4% having a SELL recommendation. The consensus target price is $149.39, 13.7% above the current share price.
Valuation
PepsiCo has underperformed peers in the last year. The company trades at a larger than normal discount to its peers and is trading well below its long-term average PE rating.
While this is, to some extent, justified by pressure expected on near-term earnings and a pedestrian mid-single-digit growth outlook thereafter, we note that continued growth in the dividend and an attractive forward hard currency dividend yield of 4.4% continues to underpin a longer-term positive view on the stock.
