UBS maintains Buy on PepsiCo stock, price target at $175

Monday, UBS reiterated its Buy rating on PepsiCo (NASDAQ:PEP) shares with a steady price target of $175.00. The firm anticipates PepsiCo's fourth-quarter earnings per share (EPS) for fiscal year 2024, set to be released next Tuesday, February 4, before market opens. UBS's forecast for the quarter's EPS stands at $1.94, aligning with the consensus among analysts. According to InvestingPro data, PepsiCo maintains strong financial health with an overall score of "GOOD" and impressive gross profit margins of nearly 55%. Discover comprehensive insights and 12 additional ProTips with an InvestingPro subscription.

PepsiCo's performance saw a challenging end to 2024 but has experienced a partial recovery in recent weeks, with a 4.5% increase on an absolute basis and a 2.5% gain relative to the Consumer Staples Select Sector SPDR Fund (XLP). Despite this rebound, investor sentiment appears cautious, with many adopting a 'wait and see' stance due to subdued demand in many Staples categories. The upcoming earnings report is not expected to significantly influence investor confidence or the stock's trajectory. Notable stability metrics from InvestingPro show PepsiCo's low price volatility with a beta of 0.55, while maintaining its impressive 52-year streak of consecutive dividend increases.

The UBS analyst noted that while PepsiCo shares are trading at approximately 17 times next twelve months (NTM) EPS estimates, below the five-year historical average of around 23 times, the valuation may be too compelling to overlook. The firm suggests that the risk/reward profile favors the upside at the current valuation levels, despite the lack of immediate catalysts expected from the forthcoming earnings release. This aligns with InvestingPro's Fair Value analysis, which suggests PepsiCo is currently undervalued, supported by strong fundamentals including $91.9 billion in revenue over the last twelve months.

PepsiCo's stock has faced a debate among investors regarding its organic revenue growth direction. However, the current share price, which reflects a discount compared to historical valuation averages, may present an attractive entry point from a risk/reward perspective. UBS believes that an improvement in performance data will be necessary to bolster confidence in the company's growth trajectory.

In summary, UBS maintains a positive outlook on PepsiCo shares, anticipating that the company's valuation and potential for upside outweigh the current market uncertainties. The firm's position remains unchanged ahead of the earnings report next Tuesday.

In other recent news, PepsiCo Inc. has been the focus of several significant developments. The company has been sued by the US Federal Trade Commission under the rarely invoked Robinson-Patman Act of the 1930s, a law that prohibits price discrimination against retailers. The details of the lawsuit, filed in a Manhattan federal court, have not been disclosed.

In a major business move, PepsiCo has acquired Siete Foods for $1.2 billion, marking a clear strategy to expand within the health-conscious food industry sector. This acquisition is expected to enhance PepsiCo's offerings, aligning with evolving consumer preferences.

On the analyst front, Deutsche Bank (ETR:DBKGn) upgraded PepsiCo shares from Hold to Buy, adjusting the price target to $184 from $179. Similarly, Piper Sandler initiated coverage on PepsiCo shares, assigning an Overweight rating and setting a price target of $171.00, reflecting confidence in the company's current valuation despite some challenges.

Keybanc highlighted a decrease in demand for recycled plastic, a challenge that PepsiCo and other major companies are navigating by incorporating chemical recycling for various plastics. Despite these challenges, PepsiCo maintains impressive gross profit margins.

Finally, PepsiCo announced a 7% increase in its quarterly dividend to $1.355 per share, following a robust financial performance with net revenue surpassing $91 billion in 2023. These are among the recent developments for investors to consider.

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