Amid the current uncertain macroeconomic environment, investors are inclined to add stocks of stable companies for the long term, which provide a steady return in the form of dividends, to hedge themselves against a potential market downturn. Therefore, PepsiCo, Inc. (PEP) could be a wise choice for investors for reasons mentioned throughout the article.

In addition to the Fed’s aggressive stance to tame inflation, the recent banking collapses have induced a ‘credit crunch.’ The already existing recessionary fears were reignited, with experts expressing concerns about dwindling economic growth in the upcoming months.

Such extrapolations have dashed investor hopes. Hence, to hedge against such uncertainties, investors could opt for stable stocks with steady returns. PEP is a popular food and beverage company that operates through its seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; Asia Pacific, Australia, and New Zealand; and China Region.

On February 1, 2023, PEP increased its quarterly dividend by 7% from the prior-year value to $1.15 per share, paid to shareholders on March 31, 2023. PEP has paid consecutive quarterly cash dividends since 1965, and 2022 marked the company's 50th consecutive annual dividend increase.

PEP pays a dividend of $4.60 per share annually. This translates to a 2.52% yield on the current price level. Its dividends have grown at 6.4% and 7.4% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 2.75%.

Over the past six months, the stock has gained 11.7% to close the last trading session at $182.30. Moreover, it has gained 5.2% over the past month. It is trading higher than its 50-day moving average of $174.35 and 200-day moving average of $174.46.

Here are the factors that could influence PEP’s performance in the upcoming months:

Solid Financials

PEP’s net revenue came in at $28 billion for the fiscal fourth quarter that ended December 31, 2022, up 10.9% year-over-year. Its non-GAAP gross profit increased 11.5% year-over-year to $14.71 billion. Also, its non-GAAP operating profit came in at $2.93 billion, up 6.9% year-over-year.

Non-GAAP net income attributable to PEP increased 8.5% year-over-year to $2.31 billion. Non-GAAP net income attributable to PEP per common share grew 9.2% year-over-year to $1.67.

Optimistic Analyst Estimates

For the fiscal second quarter ending June 2023, analysts expect PEP’s revenue to increase 5.6% year-over-year to $21.37 billion. Its EPS is estimated to grow 7.6% year-over-year to $2 for the same quarter. PEP surpassed EPS and revenue estimates in all four trailing quarters, which is impressive.

Robust Profitability

PEP’s trailing-12-month EBIT margin of 14.18% is 85.7% higher than the industry average of 7.64%. Also, its trailing-12-month net income margin and levered FCF margin of 10.31% and 7.69% are 180.5% and 189.7% higher than the industry averages of 3.68% and 2.65%, respectively.

PEP’s trailing-12-month ROCE, ROTC, and ROTA of 53.69%, 13.06%, and 9.67% are 408.4%, 106.6%, and 131.9% higher than the industry average of 10.56%, 6.32%, and 4.17%, respectively.

POWR Ratings Reflect Promising Prospects

PEP’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PEP has a B grade for Stability, consistent with its five-year beta of 0.54. It also has a B grade for Sentiment, in sync with the optimistic analyst estimates.

Within the A-rated Beverages industry, it is ranked #19 out of 36 stocks.

Click here for the additional POWR Ratings for Growth, Momentum, Sentiment, and Value for PEP.

View all the top stocks in the Beverages industry here.

Bottom Line

In light of the current market dynamic, beverage stock PEP looks well-positioned to witness significant growth on the backs of the non-cyclical demand the company faces. Moreover, given the company’s solid financials and reliable dividend payments, investors planning to retire early might buy the stock to ensure a steady passive income.

How Does PepsiCo, Inc. (PEP) Stack up Against Its Peers?

While PEP has an overall rating of B, one might want to consider looking at its industry peers, Coca-Cola Consolidated, Inc. (COKE), Coca-Cola FEMSA, S.A.B. de C.V. (KOF), and Embotelladora Andina S.A. (AKO.B), which have an overall A (Strong Buy) rating.

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PEP shares were trading at $181.27 per share on Monday morning, down $1.03 (-0.57%). Year-to-date, PEP has gained 1.02%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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