As the Q3 earnings season looms closer, anticipation mounts for PepsiCo (PEP), a stalwart in the consumer staples arena, set to unveil its performance on Tuesday, October 8th, before the market opens.
Evaluating PepsiCo’s Expectations
PEP shares have experienced a lackluster run in 2024, showing a modest 1.2% increase and maintaining a primarily sideways trajectory. Notably, investors have been reducing their exposure to Consumer Staples due to the market’s current favoritism towards the riskier Technology sector.
Analysts have tempered their earnings projections for the upcoming quarter, with the Zacks Consensus EPS estimate standing at $2.30, down 2% since mid-July but suggesting a 2.2% growth from the same period last year.
Similarly, revenue expectations have slightly dipped, with a projected $23.9 billion, a 1% decline over the same timeframe. However, this figure points towards a 1.9% increase compared to the previous year. Notably, PepsiCo’s revenue growth rate has been on the decline in recent periods.
Despite the subdued performance, PEP shares are not trading at a historical premium, with a forward 12-month earnings multiple of 19.6X, well below the five-year median of 23.6X. This decline reflects the waning growth expectations among investors.
Assessing the Investment Potential
The outlook preceding PepsiCo’s quarterly report leans towards the conservative side, marked by slight downwards adjustments in both earnings and sales expectations. While 2024 has not been stellar for PEP shares, a positive guidance in the upcoming report could inject vitality into the stock.
Given the cautious revisions, the prudent stance would lean towards a ‘wait and see’ approach. Notwithstanding the subdued outlook, PepsiCo, being a defensive stock, is likely insulated from severe downward spirals if results fail to align with expectations.
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