Tuesday, Goldman Sachs reiterated its Buy rating on Pepsico (NASDAQ:PEP) with a consistent price target of $192.00. The firm's stance comes after Pepsico reported a mix of outcomes in its third-quarter performance. While organic revenue growth fell short of expectations, the company saw significant gross margin expansion, leading to a slight earnings per share (EPS) beat against consensus estimates. This performance was in line with Goldman Sachs' own estimates.
Despite the lower-than-anticipated top-line growth, Pepsico management has revised its full-year 2024 organic sales growth forecast to around low single-digit percentage (LSD%), down from the previous estimate of approximately 4%. This new guidance is seen as more realistic, aligning with the softer year-to-date top-line growth. The updated forecast suggests that fourth-quarter top-line growth will be around 2% at the midpoint, which is consistent with the year-to-date organic sales growth level.
The fourth quarter is expected to benefit from the easiest year-over-year comparison, which could support a sequential acceleration in top-line growth. This gives Goldman Sachs confidence that the upper end of the management's full-year organic sales growth guidance is achievable. The firm's optimism is further bolstered by management's initiatives aimed at reinvigorating growth.
Goldman Sachs anticipates that Pepsico's stock may experience a modest decline today, but the firm remains positive about the company's prospects going forward. They forecast an improvement in trends for the fourth quarter and into 2024, supporting their decision to maintain the Buy rating on the stock.
In other recent news, PepsiCo, the global food and beverage giant, has reported a decrease in third-quarter revenue and adjusted its annual sales growth projection downward due to cautious spending in North America.
The company now expects a low single-digit percentage increase in organic sales for fiscal year 2024, down from the previously projected 4% growth. Despite a modest miss on organic growth, the company's management decided not to reduce the earnings per share (EPS) outlook and continues to project at least an 8% growth in EPS.
The company has also announced plans to acquire Garza Food Ventures and Siete Family Foods, each for $1.2 billion, as part of its strategy to diversify its product range and enhance its offerings in the food sector. Additionally, PepsiCo has issued Senior Notes totaling $2.25 billion for general corporate purposes and increased its quarterly dividend by 7% to $1.35 per share.
Various analyst firms have been monitoring these developments closely. Jefferies has maintained a Buy rating on PepsiCo shares, Barclays reiterated its Overweight rating on the company, while RBC Capital maintained a Sector Perform rating. These firms have noted challenges in PepsiCo's North American operations and have adjusted their expectations accordingly.
InvestingPro Insights
PepsiCo's financial health and market position offer additional context to Goldman Sachs' recent analysis. According to InvestingPro data, PepsiCo boasts a market capitalization of $229.68 billion and a P/E ratio of 24.09, reflecting investor confidence in the company's earnings potential. The company's revenue for the last twelve months as of Q2 2024 stands at an impressive $92.05 billion, with a gross profit margin of 54.64%, underscoring PepsiCo's ability to maintain profitability despite challenging market conditions.
InvestingPro Tips highlight PepsiCo's strong dividend history, having raised its dividend for 51 consecutive years and maintained payments for 54 years. This consistent dividend growth, coupled with a current dividend yield of 3.24%, aligns with Goldman Sachs' positive outlook on the stock. Additionally, PepsiCo's status as a prominent player in the Beverages industry and its operation with a moderate level of debt support the firm's Buy rating.
For investors seeking a deeper understanding of PepsiCo's financial landscape, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's strengths and potential challenges in the current market environment.
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