This article is an excerpt from “Barron’s 10 Favorite Stocks for 2024,” published on Dec. 15, 2023. To see the full list, click here.
The “Ozempic effect” and flagging investor interest in traditional consumer staples have weighed on PepsiCo stock this year. But the impact of weight-loss drugs on
PepsiCo’s
snack-food and beverage franchise will likely be minimal.
Though named for a soft drink, Pepsi has a best-in-class snack-food franchise in Frito-Lay, maker of Doritos, Cheetos, and Lay’s potato chips. Frito-Lay generates more than half the company’s profits, making Pepsi less dependent on sugary soda than Coca-Cola.
Fears that weight-loss drugs will curb snacking caused PepsiCo stock, at $168, to drop 7% in 2023. A confident Pepsi, though, said in October that it expects to deliver per-share earnings growth at the top of its high-single digit annual target in 2024 after a projected 13% gain this year. And the stock trades for 20.6 times next year’s projected earnings, below its five-year average. It also yields 3% and has raised its dividend for 51 straight years, including a 10% increase this past summer.
As for Ozempic, its use is far from widespread—maybe 1% of the population in 2024.
“Pepsi is the most durable business in our coverage,” wrote Jefferies analyst Kaumil Gajrawala in a recent client note.
It rarely pays to bet against the American eater.
Write to Andrew Bary at [email protected]
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