UBS reiterates Buy rating on Pepsico stock ahead of Q2 earnings

Investing.com - UBS maintained its Buy rating and $169.00 price target on Pepsico (NASDAQ:PEP) ahead of the company’s second-quarter earnings report scheduled for Thursday, July 17. According to InvestingPro analysis, the stock appears undervalued at current levels, with the company maintaining strong financial health scores and impressive gross profit margins of 55%.

UBS analyst Peter Grom expects a challenging quarter with organic growth and EPS estimates slightly below consensus, but believes these concerns are largely reflected in the current stock price, which trades at approximately 16.5 times next-twelve-months consensus earnings per share. This aligns with InvestingPro data showing that 4 analysts have recently revised their earnings downwards for the upcoming period.

The firm anticipates that Pepsico’s international business, which represents about 40% of the company, will continue to perform strongly, while North American operations remain the primary area of concern with little improvement in tracked trends for either Frito-Lay North America or Pepsi Beverages North America this spring. The company’s overall revenue reached $91.5 billion in the last twelve months, maintaining its position as a prominent player in the beverages industry.

Despite the mixed near-term outlook, UBS still sees a path to low-to-mid-single-digit organic revenue growth and mid-to-high-single-digit adjusted EPS growth over the long term.

The investment bank noted that Pepsico shares currently trade at a 23% discount to large-cap multinational companies, compared to a long-term historical average of 1% premium, suggesting a favorable risk/reward profile from current levels.

In other recent news, PepsiCo has completed its acquisition of poppi, a prebiotic soda brand, for $1.95 billion. This strategic move is part of PepsiCo’s efforts to align its product offerings with modern health trends, adding to its portfolio of functional beverages. The acquisition includes anticipated cash tax benefits, reducing the net purchase price to $1.65 billion, with additional performance-based earnouts contingent on future metrics. PepsiCo is scheduled to release its second-quarter 2025 earnings on July 17, with analysts projecting earnings per share of $2.02, slightly below the consensus estimate. Concerns over slowing sales in PepsiCo’s North American divisions have led BofA Securities to lower its price target to $145, while Evercore ISI maintains its "In Line" rating with a $140 price target. TD Cowen continues to hold a "Hold" rating on PepsiCo, noting a decline in Frito-Lay’s single-serve sales due to its price pack architecture strategy. PepsiCo’s ongoing strategies and financial performance remain under close scrutiny by analysts as the company navigates challenges in the North American market.

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