Analysts at Barclays have modestly increased their price target for PepsiCo (NASDAQ:PEP) following the beverage giant’s third quarter financial results on their view the company is “playing the long game.”
They upped their price target from US$179 to US$181 and maintained their ‘Overweight’ rating.
Shares of Pepsi fell 1.2% to US$162.38 on Wednesday afternoon.
“Ultimately, 3Q results followed those of recent Food reporters with a volume miss that was made up for by better price/mix,” the analysts wrote in a note to clients.
“Importantly, we think such trends reflect consumers shifting to smaller package sizes and cash outlay, but still remaining ‘engaged’ with Pepsi's brands. And while this presents a near-term headwind to volumes, it flows favorably through margins.”
They added: “At a time when the investment community is hyper-focused on volumes, we think Pepsi is taking a balanced approach towards growth.”
The analysts noted that, to their positive surprise, Pepsi offered preliminary guardrails for 2024 that convey confidence in a solid set-up for next year, forecasting next year’s organic sales and constant currency earnings per share (EPS) growth toward the higher end of its long-term algorithm (4% to 6% and high single-digit, respectively).
Pepsi usually waits until its fourth quarter earnings report in February to discuss the next year’s outlook, the analysts pointed out.
“Given the considerable volatility in Staples as of late, we can understand wanting to put a floor of sorts in place,” they wrote.
They wrote that the 2024 outlook was met with some skepticism due to more recent volume trends, particularly given how much weight is put on the domestic business, but the analysts believe such a view fails to appreciate the runway for international volume growth to be stronger than it was pre-pandemic, thanks to all the investments made in recent years.
“Not to mention, Pepsi has a well-established track record of meeting or beating guidance (55 sequential quarters, in fact),” they wrote.
“For our part, we view the outlook as well-supported and anchor our updated model to respective constant currency top and bottom line growth of 5.2% and 8.7%.”
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