On Tuesday, UBS reaffirmed its Buy rating on shares of PepsiCo (NASDAQ:PEP), with a steady price target of $200.00. The company is poised to release its second-quarter earnings for the fiscal year 2024 on July 11, before market opening. UBS's second-quarter earnings per share (EPS) estimate for PepsiCo remains unchanged at $2.15, aligning with the consensus of Visible Alpha.
Despite PepsiCo's stock experiencing a sideways trend since the beginning of the year, with a slight decline of 2.9% compared to the Consumer Staples Select Sector SPDR Fund's (NYSEARCA:XLP) 6% gain, UBS notes that investor sentiment is currently negative.
This sentiment is in contrast to the past year's underperformance relative to large-cap multinational peers, which some investors view as an opportunity, given PepsiCo's shares are trading at an approximately 19.5 times next twelve months (NTM) consensus estimates. This valuation represents an 11% discount to its peers, diverging from its historical average premium in the mid-single-digit percentage range.
The fundamental challenges for PepsiCo are highlighted by the year-over-year decline in U.S. trends, with international performance possibly balancing the scales. However, expectations for organic growth are at the lower end compared to its peers for the second quarter, leading to concerns over the feasibility of meeting the full-year sales forecast.
UBS anticipates that the upcoming earnings report may not significantly boost investor confidence, as many adopt a 'wait-and-see' stance regarding potential improvements in top- and bottom-line trends.
Despite these short-term concerns, UBS envisions a trajectory of improved performance for PepsiCo in the longer term. The current market position is considered an appealing entry point for investors, indicating potential for future gains.
In other recent news, PepsiCo's earnings and revenue have been the topic of discussion among analysts. Goldman Sachs (NYSE:GS) maintained a 'buy' rating on the company, despite adjusting estimates lower due to weaker-than-expected scanner data in PepsiCo's North America Beverages and Frito-Lay North America segments.
Meanwhile, Deutsche Bank (ETR:DBKGn) lowered its price target from $185 to $180, maintaining a 'hold' rating due to concerns over sluggish U.S. consumption trends and potential risks posed by recent devaluations in Latin American currencies.
In merger news, PepsiCo has agreed to waive a change of control clause in its bottling arrangements with Britvic, potentially paving the way for Carlsberg (CSE:CARLb)'s prospective acquisition of the British soft drinks maker. This move could potentially clear a significant obstacle for the Danish brewer's prospective acquisition of Britvic.
In recent analyst upgrades and downgrades, Jefferies raised its price target on PepsiCo from $209 to $211, maintaining a 'buy' rating. The firm anticipates that with new management's focus on margin prioritization, PepsiCo's North America Beverages margins could begin to see a positive turn.
In other company news, PepsiCo announced a 7% increase in its quarterly dividend, marking the 52nd consecutive annual rise. David Trone, the congressional representative for Maryland's 6th district, sold off a portion of his PepsiCo stocks held in an Insurance Trust, valued between $50,001 and $100,000. These recent developments highlight the dynamic environment in which PepsiCo operates.
InvestingPro Insights
In light of the upcoming second-quarter earnings release for PepsiCo on July 11, real-time data from InvestingPro offers additional context to UBS's assessment. With a Market Cap of $224.41 billion and a P/E Ratio of 24.42, PepsiCo's financial stability is notable. The company's Gross Profit Margin stands strong at 54.15% over the last twelve months as of Q1 2024, underscoring the impressive gross profit margins highlighted by InvestingPro Tips.
Moreover, PepsiCo's Dividend Yield is at 3.33%, reflecting the company's history of maintaining dividend payments for 54 consecutive years, which is a testament to its financial resilience and commitment to shareholder returns.
InvestingPro Tips also suggest that PepsiCo is an influential player in the Beverages industry with moderate levels of debt, which could be a reassuring factor for investors considering the company's ability to navigate market fluctuations. Furthermore, the tips indicate that PepsiCo's cash flows can sufficiently cover interest payments, providing further evidence of financial health.
For those interested in deeper analysis and additional tips, there are 13 more InvestingPro Tips available for PepsiCo, which can be accessed at https://www.investing.com/pro/PEP. Investors can make use of the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription for more in-depth insights and tips on PepsiCo and other investment opportunities.
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