On Tuesday, Jefferies, a global investment banking firm, adjusted its price target for Pepsico (NASDAQ:PEP), listed on NASDAQ:PEP, to $198 from the previous $200 while maintaining a Buy rating on the stock. The revision reflects the firm's analysis of Pepsico's current business challenges, particularly in the United States market.
The firm noted that Pepsico's US operations are facing difficulties, with a noticeable slowdown in its Frito brand and an acceleration in share losses by its Pepsi Beverages North America (PBNA) division. According to Jefferies, 2024 is anticipated to be a year of consolidation for the company. Despite these setbacks, the firm believes that Pepsico's financial estimates have reached a more stable point and that the cycle of revisions may be nearing its end, with Frito's organic growth projection for fiscal 2024 decreasing by 1.6 percentage points.
Jefferies highlights that Pepsico's current share price, trading at approximately 19.5 times its projected 2025 earnings—below the five-year average of 23 times—presents a potential opportunity for investors. The investment firm suggests that Pepsico's proactive strategies over the years should yield benefits during challenging economic conditions, given the company's ability to adapt its profit and loss strategies to still achieve high single-digit earnings per share growth.
In other recent news, PepsiCo has been actively expanding its portfolio through strategic acquisitions. The company announced its intention to buy Garza Food Ventures and Siete Family Foods, both for $1.2 billion, as part of its expansion strategy. These acquisitions are expected to diversify PepsiCo's product range and enhance its offerings in the food sector.
Meanwhile, both BofA Securities and Goldman Sachs (NYSE:GS) have revised their price targets for PepsiCo shares, citing concerns about the company's performance in the North American market. Despite the revisions, both firms maintain their positive ratings for the company's stock.
PepsiCo has also made significant changes in its bylaws to comply with recent U.S. Securities and Exchange Commission regulations, including the adoption of the "universal proxy card" rules. In addition, the company has increased its focus on India, a rapidly expanding market.
PepsiCo has issued Senior Notes totaling $2.25 billion for general corporate purposes and increased its quarterly dividend by 7% to $1.35 per share. Despite the departure of Deputy CFO, Jim Lee, BNP Paribas (OTC:BNPQY) Exane has maintained a neutral rating on PepsiCo. These are among the recent developments for the global food and beverage giant.
InvestingPro Insights
Adding to Jefferies' analysis, recent data from InvestingPro provides further context on PepsiCo's financial position and market performance. The company's market capitalization stands at $235.42 billion, reflecting its significant presence in the beverage and snack industry. PepsiCo's P/E ratio of 24.72 aligns with Jefferies' observation of the stock trading below its five-year average, potentially indicating an attractive valuation.
InvestingPro Tips highlight PepsiCo's impressive gross profit margins, which are supported by the data showing a gross profit margin of 54.64% for the last twelve months as of Q2 2024. This robust margin could provide the company with flexibility to navigate the challenges in its US operations, as mentioned by Jefferies.
Additionally, PepsiCo's dividend history is noteworthy, with InvestingPro Tips revealing that the company has raised its dividend for 51 consecutive years and maintained payments for 54 years. The current dividend yield of 3.19% may appeal to income-focused investors, especially during a period of market consolidation predicted by Jefferies for 2024.
While Jefferies maintains a Buy rating, it's worth noting that InvestingPro Tips indicate that 5 analysts have revised their earnings downwards for the upcoming period. This aligns with the challenges highlighted in the article and suggests that investors should monitor the company's performance closely.
For readers interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for PepsiCo, providing a deeper understanding of the company's financial health and market position.
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