HomeMost PopularPepsiCo: Strong Growth Driven By Pricing And GLP-1 Anti-Obesity Drug Is Non-Structural

PepsiCo: Strong Growth Driven By Pricing And GLP-1 Anti-Obesity Drug Is Non-Structural

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PepsiCo (NASDAQ: PEP), the leading player in the global beverage and convenience food industry, has achieved impressive growth over the past decade through its focus on portfolio premiumization and net pricing. While concerns about the potential impact of GLP-1 anti-obesity drugs on PepsiCo’s future growth have caused a recent decline in stock price, I view this as a favorable opportunity for long-term investment with a ‘Strong Buy’ rating.

Premiumization Leads Net Pricing Growth

PepsiCo’s net pricing growth can be attributed to several factors. Firstly, the company has responded to consumer demand for zero-sugar options by introducing non-sugar brands like Lifewtr, Propel, and Bubly. These products not only cater to health-conscious consumers but also generate higher margins for PepsiCo. Secondly, PepsiCo has extended its existing brands into new spaces, such as combining coffee with cold brew and cola with nitro. These innovations leverage PepsiCo’s manufacturing and distribution capabilities, leading to higher gross profits. Lastly, PepsiCo’s expansion into small and multi-packs in their snack business, like the introduction of Minis, has the potential to significantly increase profit margins.

Premiumization Impact on Growth

PepsiCo’s premiumization strategy has fueled solid organic revenue and core EPS growth in recent years. By extending existing brands and launching new product categories and brands, PepsiCo has broadened its customer base and improved operational efficiency. The company’s innovations in Gatorade FIT and G Zero subsegments, which continue to attract new consumers, are expected to contribute additional revenues at lower costs.

GLP-1 Anti-Obesity Drugs

The recent launch of GLP-1 anti-obesity drugs by Novo Nordisk, such as Ozempic and Wegovy, has caused concerns about the potential impact on PepsiCo and other diabetes-related stocks. However, I believe the long-term impact on PepsiCo is immaterial. These drugs have already shown gastrointestinal side effects and are expensive, making them less accessible to a wider population. Furthermore, PepsiCo’s ongoing product premiumization strategy and focus on new cooking methods for snacks reduce the potential impact of these drugs.

Financial Analysis and Outlook

PepsiCo is well-managed, boasting respected gross margins, free cash flow margins, and a healthy balance sheet. With a target of 4-6% organic revenue growth, annual margin expansion, and share repurchases, the company aims for high single-digit EPS growth. Their historical growth trajectory aligns with their long-term guidance, and with further product premiumization and brand extensions, PepsiCo’s growth rate should remain strong.

Key Risks

One key risk for PepsiCo is a potential decline in consumer consumption, especially in a high-interest rate environment where consumers might tighten their spending on snacks and beverages. Additionally, PepsiCo’s exposure to emerging markets like China and Latin America could result in volatile consumption patterns. However, PepsiCo operates these businesses locally, minimizing the impact of potential risks.


Based on my discounted cash flow (DCF) model, PepsiCo’s stock price is undervalued at $190 per share. The model incorporates assumptions of organic revenue growth, expense growth, and operating margin expansion. With a reasonable discount rate and terminal growth rate, the DCF valuation suggests the current stock price is below its fair value.


I believe PepsiCo is a well-managed global giant, and the current overreaction to the GLP-1 news presents a buying opportunity for long-term investors. With its strong growth prospects, undervalued stock price, and commitment to product premiumization, PepsiCo deserves a “Strong Buy” rating.

Editor’s Note: This article was submitted as part of Seeking Alpha’s Best Value Idea investment competition, running through October 25.

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