Pepsi (NASDAQ:PEP) has been a consistent performer for many years, with a brand name that is instantly recognizable around the world. In a marketplace that is trending toward healthier food and beverage choices, will Pepsi stock continue to satisfy its investors?
The company’s most recent quarterly report gave no sign of the company slowing down. In fact, it was more positive than many analysts had predicted.
Pepsi’s total revenue exceeded $16 billion for the first time, with profits coming in at $1.61 per share. The biggest driver of growth was the expansion of the company’s Frito-Lay business in North American, Europe and Africa. As a result, operating income growth for the whole company was 5%.
One thing that has sustained Pepsi stock’s share price in the past is the consistency of its dividend. Its dividend yield is now 3.3%, noticeably higher than the consumer goods average of 1.8%.
The stock’s appeal to income investors, due to its dividend yield, has allowed it to be less volatile than many of its peers in the consumer sector. With the bull market having gone on for so long and a possible correction in store, that makes it a useful defensive addition to one’s long-term portfolio.
Management has pursued a twofold strategy to maintain market share: introduce healthier alternatives in the North American market while marketing more aggressively on the international scene.
For the most recent quarter, revenues from Africa and Europe jumped by 7% year-over-year, with sales in Mexico and Argentina also showing substantial gains.
All the major producers of sugary drinks — Coca-Cola (NYSE:KO) and Keurig Dr. Pepper (NYSE:KDP) as well — have been exploring possible ways of expanding their healthier products while still maintaining a grip on consumers who love traditional sodas.
In a conference call that accompanied the earnings announcement, Pepsi CEO Indra Nooyi said she and her team “remain laser-focused on higher-growth categories with appropriate brand investments and robust innovation.”
Pepsi has been a perennial runner-up to Coca-Cola in the cola wars, but the market is big enough to sustain two blue-chip companies. With its wide range of snack brands available from the Frito Lay division, Pepsi is somewhat better diversified than its Atlanta-based rival.
Bottom Line on Pepsi Stock
The price of Pepsi stock has been climbing in recent weeks, stimulated in part by the positive earnings report. But it has still not quite reached the level it was at in January, and its price-earnings ratio of 33 is reasonable considering its growth prospects, brand loyalty and steady performance over many years.
While the healthy trend is real, old-fashioned sodas will remain big sellers for some time to come, and Pepsi has done an impressive job of defending and even expanding its market share in all kinds of markets.
The author does not own any of the stocks mentioned in this article.