On Tuesday, Piper Sandler began coverage on Pepsico (NASDAQ:PEP) shares, assigning an Overweight rating and setting a price target of $171.00. According to InvestingPro data, PepsiCo currently trades near its 52-week low of $146.10, with a market capitalization of $203 billion. The stock appears undervalued based on InvestingPro's Fair Value analysis.
The firm highlighted the challenges facing the company, such as consumer resistance to high prices for branded food and the unpredictability surrounding Pepsico's 2025 guidance.
Despite these hurdles, Piper Sandler sees the current uncertainty as reflected in the stock's price and recommends purchasing shares. The company maintains impressive gross profit margins of 54.9% and has raised its dividend for 52 consecutive years, demonstrating operational strength despite market challenges.
The analysts at Piper Sandler believe that Pepsico's Frito-Lay division, which they consider one of the best global food businesses, has the potential to regain its momentum over time. They suggest that the risks associated with discounts in the first half of 2025 and the uncertain guidance for the year are already factored into the stock's valuation.
Piper Sandler's valuation of Pepsico is based on an approximately 18.5 times price-to-earnings (P/E) multiple applied to the estimated earnings per share (EPS) for 2026. This multiple is significantly lower than Pepsico's five-year historical average P/E ratio of 22.5 times. The analysts expect that Pepsico will be able to counterbalance some of the increased discounting with additional productivity savings. Currently, the stock trades at a P/E ratio of 21.5x with projected earnings growth for fiscal 2024.
Pepsico, listed on NASDAQ under the ticker PEP, is being closely watched by investors as it navigates the current economic climate. Piper Sandler's initiation of coverage with a positive outlook provides a new perspective on the company's prospects amid the broader challenges in the consumer goods sector.
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