Citi Analysts Signal Potential Downside for PepsiCo Ahead of Q3 Earnings: Key Insights and What It Means for Your Investments
In a recent analysis, Citi's top analysts have raised concerns about PepsiCo's (NASDAQ: PEP) stock performance leading up to its third-quarter earnings report, scheduled for October 8. The bank's forecast suggests that the company may miss its organic sales growth (OSG) targets, putting the stock at risk of a short-term downturn.
Key Forecast Highlights
Soft North American Performance
Citi's estimates predict a modest +1.5% OSG, significantly lower than the consensus expectation of +3.5%. This downgrade is primarily due to weak performance in North America, where scanner trends for beverages and snacks have been less than encouraging.
International Growth Remains Stable
On a brighter note, international growth is expected to be more robust, with projections in the mid-single digits. This indicates that PepsiCo's global footprint may help cushion some of the domestic weaknesses.
2024 and 2025 Outlook
Citi analysts have flagged risks to PepsiCo's 2024 OSG guidance, which was initially pegged at ~4%. They now foresee a potential cut to ~3%, with their models suggesting an OSG of just +2.5% for the year. On the earnings per share (EPS) front, Citi anticipates that PepsiCo will stick to its guidance of "at least $8.15," although there's a slight risk of a cut by around 100 basis points in a worst-case scenario.
Long-term Perspective
Despite the expected short-term challenges, Citi maintains a Buy rating on PepsiCo over a 12-month period. They believe the most critical debate around PepsiCo revolves around the potential need for a 2025 EPS rebase. Analysts have expressed concerns that the company might have to lower snack prices to boost demand, which could further impact next year's earnings outlook.
Investment Implications
Valuation and Buy Rating
Currently, PepsiCo's stock trades at approximately 20 times Citi's below-consensus EPS estimate of $8.50 for 2025. This valuation suggests that some of the anticipated risks are already priced into the stock. Hence, despite near-term headwinds, Citi retains a Buy rating, emphasizing a longer-term investment horizon.
Breakdown for Easy Understanding
- What’s Happening?
- Citi analysts are warning that PepsiCo might not meet its sales growth targets for Q3, primarily due to poor performance in North America.
- Why Should You Care?
- If you own PepsiCo stock or are considering buying it, this forecast suggests there may be short-term downside risk.
- What’s the Long-term View?
- Despite these short-term concerns, Citi believes PepsiCo remains a good long-term investment and maintains a Buy rating for the next 12 months.
- Key Metrics to Watch:
- Organic Sales Growth (OSG)
- Earnings Per Share (EPS)
- North American market performance
- International growth trends
- Action Steps:
- If you’re a current investor, consider holding your positions but stay updated on upcoming earnings reports.
- For potential investors, this could be an opportunity to buy on dips, keeping an eye on long-term growth prospects.
By understanding these key points, even the most novice investor can grasp how Citi's forecasts might influence PepsiCo's stock and make informed decisions about their investments.