High-yielding Dividend King PepsiCo (NASDAQ: PEP) is an investment value too good to ignore because its business is solid, growth is forecasted, the margin is widening, and capital returns are flowing. Trading below $150 in early February, it is well below the historical average P/E multiple and the low end of the analysts' forecasted price range, where it is unlikely to remain long.
The likely scenario is that a bottom is in play, and a rebound lies ahead. When the rebound begins and how high it gets depends on the analysts. As it is, the analysts are bullish on the stock, but the price target revisions in late 2024 and early 2025 were downward and provided a headwind for the market.
Even so, the 18 analysts tracked by MarketBeat are up by six year-over-year, a 50% increase, showing a high conviction in the Hold rating and outlook for capital gains.
The low-end range suggests a 3.3% price rebound, while the consensus of $176 is a more robust 17%.
Assuming the analysts' trends shift for the better, the stock price could move into the high-end range by year’s end and potentially set a new all-time high.
PepsiCo Growth to Accelerate in 2025
PepsiCo’s growth wasn’t robust in 2024 and will not be in 2025, but growth is present, the margin is widening, and the outlook for 2025 is acceleration. Q4 2024 produced a mixed result, with revenue contracting by 0.3% versus the expectation for steady business. However, the reported result was impacted by repositioning and FX headwinds offset by organic strength. The company grew 2% organically, with volume and pricing each adding 1%. North America was weakest, with PepsiCo revenue flat and Frito-Lay and Quaker down by 2%. Latin America, Europe, and APAC were the areas of strength, growing by 4%, 7%, and 1% respectively.
Margin news is where this consumer staples company’s results shined. PepsiCo widened its margin at all levels, significantly improving earnings quality. The FY operating margin improved by 170 basis points to drive a 33% increase in operating profit and a 14% FXN increase in adjusted earnings. The $1.96 in adjusted EPS is also $0.02 ahead of MarketBeat’s reported consensus despite the top-line weakness and sufficient to sustain the capital outlook.
Guidance is good. PepsiCo didn’t inspire a round of applause with its 2025 guidance but is looking for growth to accelerate from below 1% in 2024 to the low-single-digit range. Organic growth will be accompanied by margin expansion and a slightly faster mid-single-digit growth pace, which is good news for balance sheet health and capital returns. The capital return in 2024 included the dividend, which yields more than 3.5% while trading near $150, a 5% distribution increase, and share buybacks. The repurchases aren’t robust but are sufficient to reduce the share count incrementally each quarter and are expected to continue in 2025.
PepsiCo’s Balance Sheet Is Rock-Solid
PepsiCo logged a cash flow negative year for 2024, but details like the slight cash reduction are offset by reduced debt sales, total debt reduction, and share repurchases. The net effect is a small decline in shareholder equity, offset by the decreased share count and growth outlook, which includes the return to trend.
PepsiCo’s price chart reflects the return to trend, showing the COVID-19/pantry-hoarding bubble and the subsequent normalization. The price action moved below the long-term trend line in late 2024 and could continue to move lower in 2025 but is unlikely to do so. The price action has tested or broken this line more than a dozen times since 2009, each resulting in a rebound and continuation of the underlying price trend. In this scenario, PepsiCo’s price rebound could begin soon but may not reach new highs until 2027 or later without new catalysts (such as quarterly outperformance) to accelerate the rally.
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