Zinger Key Points
- PepsiCo’s Q4 earnings beat analyst estimates with effective cost management.
- Analyst sees sustainable growth despite short-term challenges in U.S. market.
- Get Pro-Level Earnings Insights Before the Market Moves
Goldman Sachs analyst Bonnie Herzog reiterated a Buy rating on the shares of PepsiCo Inc PEP with a price forecast of $189.00.
PepsiCo posted fourth-quarter results that were mostly in line with expectations, reporting a modest 2.1% organic revenue growth, which was balanced by effective cost management, leading to a slight EPS beat of $1.96, said the analyst.
Despite a modest 2% organic revenue growth, PepsiCo achieved an impressive 9% constant currency EPS growth for FY24, indicating strong management in a challenging environment.
Looking ahead, while PepsiCo is focused on driving food & beverage category growth, recent trends in the U.S. remain under pressure, leading management to forecast only modest low-single-digit organic growth this year, which aligns with the analyst’s expectations and is below the company’s long-term growth target of 4-6%.
PepsiCo also anticipates mid-single-digit core foreign exchange neutral bottom-line growth, lower than their long-term target of high-single-digit growth.
However, a roughly ~3pt headwind from foreign exchange is expected to impact reported net revenue and EPS, meaning the company projects core EPS growth of just low-single-digits, implying FY25 EPS between $8.24 – $8.40, slightly below the analyst’s and FactSet consensus estimates of $8.60/$8.52.
Although this suggests a slight downward revision of estimates, the analyst notes the company’s cautious expectations are realistic after several years of strong growth, and some normalization is to be expected.
Overall, while the analyst anticipates a modest dip in the stock price today, trends should improve later this year.
The analyst notes that the company is exceptionally well-positioned due to its strong brand portfolio, particularly with Frito Lay, and its long-term growth prospects in Beverages.
PEP’s strong revenue growth management, owned distribution network, and efficient supply chain ensure that the right products are available at the right time and price.
The analyst remains confident that PepsiCo can achieve sustainable average annual organic sales growth of +mid single-digit percentage over the next decade despite potential short-term challenges.
Price Action: PEP shares are trading lower by 4.21% at $143.94 at the last check Tuesday.
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