The COVID-19 outbreak caused major disruption for some industries while causing a spike in demand for everyday essentials. PepsiCo (NYSE: PEP) saw a boost in sales for certain products.
PepsiCo generated 54% of its sales last year from food with the balance from beverages, and it experienced balanced growth across these categories in the first quarter. In addition to its namesake soft drink brand, it owns Gatorade, Mountain Dew, Quaker, Doritos, and SodaStream, the fast-growing, do-it-yourself soda maker that it acquired in 2018 for $3.3 billion.
PepsiCo’s solid first quarter wasn’t enough to boost the stock, which is down slightly since the start of the year.
Here’s a review of the company’s recent performance and valuation analysis:
Recent investments are paying off for Pepsi:
The snack food empire is performing well after CEO Ramon Laguarta stepped in a few years ago to improve performance. Management has made investments in marketing, manufacturing capacity, and innovation, and all these efforts have paid off.
PepsiCo delivered 7.9% organic revenue growth, which excludes currency changes and the impact of acquisitions and divestitures. That reflects higher demand from COVID-19 toward the end of March and a significant improvement over the year-ago quarter’s 5.2% organic revenue growth. The bottom-line performance was also strong, with core constant currency earnings-per-share (EPS) up 10%.
PepsiCo was already performing well before the spike in demand. Management disclosed that excluding the demand surge around COVID-19, organic revenue would have still exceeded a 5% growth in the quarter. Equally impressive was that growth was broad-based across geographies and balanced across snacks and beverages.
PepsiCo is making important investments in other areas, such as e-commerce, which totaled $2 billion in sales in 2019, representing about 3% of total revenue. It’s also making investments in data analytics to better understand the consumer, and management sees a long growth runway in international markets.
If you’re looking for growth, PepsiCo stock has returned over the last 10 years dividends reinvested (186%).
Based on traditional measures of value like Price-to-Earnings (P/E), PepsiCo might look like a good deal.
PepsiCo also offers an above-average dividend yield of 2.9%, although the cash payout ratio is currently at 107%, which doesn’t leave much room to increase the dividend if free cash flow doesn’t grow.
Pepsi Long (Buy)
ENTER AT: 135.24