Why PepsiCo's stock is at a 1-year low
Why PepsiCo's stock is at a 1-year low.
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Quick insight: PepsiCo shares are hovering around a one-year low, according to Yahoo Finance AlphaSpace data. At a forward P/E multiple of about 15.4 times, the food and snack giant's stock trades on the lowest multiple in more than a decade.
This comes amid a steady sell-off after its second quarter earnings. Shares are down about 5% since the company reported on July 9.
The why: The recent earnings report showed more signs that US consumers remain cautious, particularly in snacks and beverages, despite lower prices.
In the second quarter, PepsiCo reported revenue of $24.2 billion, up 6.4% year over year and above Wall Street expectations. Adjusted earnings per share came in at $2.20, roughly in line but slightly below some analyst estimates.
The biggest concern was weakness in North America, where snack volumes were flat and beverage volumes declined 4% as consumers pulled back on discretionary purchases. PepsiCo has also been cutting prices on brands like Lay's and Doritos to win back shoppers, which has pressured pricing power and margins. Core operating profit margins fell 40 basis points year over year in the quarter.
Management maintained its full-year outlook, calling for 2% to 4% organic revenue growth and 4% to 6% core constant-currency EPS growth. But execs warned that North American recovery may take longer and input cost inflation could rise in the second half of the year.
"The stock's current valuation, bolstered by a safe and attractive dividend yield, suggests significant investor skepticism that PEP can achieve its +3% target for the U.S. on a sustainable basis. We remain on the sidelines for now and see the stock in a $135-$145 trading range until we see definitive improvement in the US," Evercore ISI analyst Robert Ottenstein said in a note.
Bottom line: A lot has to come together quickly for PepsiCo to meet its full-year outlook and quiet the critics in the next quarter.
Brian Sozzi is Yahoo Finance's Executive Editor, host of the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi , Instagram , and LinkedIn . Tips on stories? Email brian.sozzi@yahoofinance.com.
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