On Monday, Morgan Stanley (NYSE:MS) maintained its Equalweight rating on Pepsico (NASDAQ:PEP), with a steady price target of $190.00. The financial institution's analysis suggests that Pepsico's stock may have weathered the most challenging period. The firm acknowledges a notable shift in Pepsico's valuation relative to its peers, moving from a premium to a discount, and a recalibration of its revenue forecast for 2024.
Pepsico experienced its first organic sales growth (OSG) miss since 2017 in the fourth quarter. This performance coincided with a significant change in the company's near-term price-to-earnings (P/E) ratio, which has gone from a 5% premium compared to its mega-cap consumer packaged goods (CPG) peers after the second quarter to a 9% discount at present.
Additionally, Pepsico has adjusted its top-line growth expectations for 2024, setting what Morgan Stanley views as more realistic targets. The firm notes that although Pepsico's valuation has become somewhat compelling compared to its solid long-term business model, the company's top-line growth is anticipated to be weaker than that of its peers in 2024. This is further supported by the fourth quarter's results, which confirmed a downward trend.
The forecast for the beginning of 2024 is not particularly strong, with industry pricing expected to decline. Morgan Stanley points out that there are limited catalysts that could potentially drive Pepsico's stock performance in the near term, especially considering the anticipated soft start in the first quarter of the year.
InvestingPro Insights
Amidst Morgan Stanley's steady outlook on Pepsico, the InvestingPro data paints a broader picture of the company's financial health and market position. Pepsico's market capitalization stands at a robust $230.45 billion, reflecting its significant presence in the industry. The company's P/E ratio, a critical measure of its valuation, is currently at 25.56, which aligns with the observations of a valuation shift mentioned by Morgan Stanley. Notably, the P/E ratio has adjusted to 22.8 over the last twelve months as of Q4 2023, suggesting a more favorable valuation in recent times.
The gross profit margin is another standout metric, with Pepsico achieving an impressive 54.23% in the last twelve months as of Q4 2023. This figure underscores the company's ability to maintain profitability despite market fluctuations. Additionally, Pepsico's dividend yield is at 3.02%, which is attractive to investors looking for steady income. This is in line with the company's notable history of raising its dividend for 54 consecutive years, a testament to its financial stability and commitment to shareholder returns.
InvestingPro Tips highlight Pepsico's position as a prominent player in the Beverages industry, with an impressive track record of profitability and consistent dividend payments. However, it's worth noting that some analysts have revised their earnings downwards for the upcoming period, which could be a point of consideration for investors. For those seeking a deeper dive into Pepsico's performance and future outlook, there are additional InvestingPro Tips available, providing a comprehensive analysis of the company's prospects. Interested readers can unlock these insights and benefit from an exclusive offer using the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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