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Where PepsiCo’s Valuation Stands after Strong Q1 Results

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Valuation after Q1 results

PepsiCo’s (PEP) 12-month forward PE ratio grew 0.7% to 22.1x on April 17, the day the company announced its first-quarter results. PepsiCo delivered better-than-expected results for the first quarter and generated strong organic revenue growth of 5.2%. PepsiCo did not raise guidance and continues to predict organic revenue growth guidance of 4% for full-year 2019 and an estimated 3% decline in adjusted EPS to $5.50.

As of April 18, PepsiCo was trading at a 12-month forward PE of 22.2x. In comparison, peers Coca-Cola (KO), Keurig Dr Pepper (KDP), and Monster Beverage (MNST) were trading at 12-month forward PEs of 22.5x, 21.0x, and 26.5x, respectively, as of April 18.

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Gauging analysts’ expectations

Analysts expect PepsiCo’s revenue to rise 2.9% on a reported basis to $66.5 billion in 2019. Analysts expect the company’s adjusted EPS to fall 2.5% to $5.52. PepsiCo’s bottom line in 2019 is anticipated to be adversely impacted by currency fluctuations and additional investments to strengthen its business.

PepsiCo’s Frito-Lay North America business has been its major strength. But the performance of its beverage business has been under pressure due to weak volumes in the carbonated soft drinks category. Consumers are moving away from sugary soda beverages and towards lower-calorie, healthier choices. To improve its soda volumes, PepsiCo has been innovating to offer low-calorie and no-calorie versions of its products and is also increasing its marketing efforts.

Currently, analysts forecast the adjusted EPS of rivals Coca-Cola, Keurig Dr Pepper, and Monster Beverage to rise 1.0%, 16.3%, and 11.7%, respectively, in 2019.

Overall commodity inflation and adverse currency movements are expected to put pressure on the performance of nonalcoholic beverage companies this year.

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