On Friday, PepsiCo (NASDAQ:PEP) received a positive outlook from Jefferies, with the firm increasing the stock's price target to $209 from $199 and maintaining a Buy rating.
The upward revision reflects the company's continued international momentum, which shows no signs of slowing down. The analyst noted that demographic trends, low per capita consumption, and the company's ability to transfer successful strategies from one market to another (lift and shift capabilities) are key drivers for growth.
The report further highlighted that PepsiCo's profit margins have now surpassed the corporate average and still have the potential to improve as the company's scale increases. Despite these positive indicators, PepsiCo's stock is currently trading at 19 times its projected earnings, which is three turns below its five-year average.
The analyst believes that the market has not fully recognized PepsiCo's potential overseas, primarily due to the persistent focus on the slowdown in the Frito-Lay division. This oversight is seen as creating an "enhanced buying opportunity" for investors. Consequently, Jefferies has added PepsiCo to its Franchise Picks list, a selection of stocks expected to outperform, while also raising its price target.
The updated price target of $209 represents Jefferies' confidence in PepsiCo's growth trajectory and its appeal to investors looking for opportunities in the market.
InvestingPro Insights
Following Jefferies' optimistic outlook on Pepsico (NASDAQ:PEP), the latest data from InvestingPro further enriches the investment perspective. Pepsico's market capitalization stands strong at $233.19 billion, reflecting the company's substantial presence in the market. The P/E ratio, currently at 25.81, suggests that investors are willing to pay a premium for Pepsico's earnings, which could be justified by the company's impressive gross profit margins of 54.23% over the last twelve months as of Q4 2023. These margins surpass the corporate average, aligning with Jefferies' analysis of Pepsico's profitability.
Moreover, Pepsico has demonstrated a solid dividend track record, maintaining payments for 54 consecutive years and showcasing a dividend growth of 10.0% in the same period. This level of consistency is a testament to Pepsico's financial stability and commitment to shareholder returns, an important factor for income-focused investors. With a dividend yield of 2.98%, Pepsico remains an attractive option for those seeking regular income streams.
While the stock has experienced a slight dip with a 1-week total return of -3.06%, the 6-month return paints a brighter picture at 7.59%, indicating resilience and potential for recovery. Pepsico's next earnings date is set for April 23, 2024, which investors will be watching closely for further insights into the company's performance.
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