Why PepsiCo Stock Is A Buy On Fundamentals Alone

  •  Consistently Strong Dividend Yield for over 10 years, currently at 2.8%.
  •  Growth in core earnings despite trouble in Latin America.
  •  PepsiCo is twice as large as its largest competitor in North America.

Pepsico (NYSE:PEP) fundamentals make it a buy and a great long-term investment. PepsiCo’s diverse portfolio of brands and products in the U.S. and International markets have performed extremely well and provide consistent dividend yields despite volatile macroeconomic conditions. Organic revenue growth was up 5%, with success across Pepsi-Cola, Gatorade, Frito-Lay, and Quaker products. Each of these brands is a consumer favorite in its respective market.

Fourth Quarter net revenue came in at $18.6 billion, and was split about evenly between beverages and foodstuffs. PepsiCo's diversification away from carbonated drinks has helped it overcome the decline faced by its competitors such as Coca Cola (NYSE:KO). Despite turbulent macroeconomic conditions in PepsiCo’s target areas such as Latin America, PepsiCo has continued to grow. PepsiCo managed to grow its EPS on a sequential basis, with a Q4 reported EPS at $1.17 compared to Q3 reported EPS of $0.36. In PepsiCo’s latest earnings call, the financial focus was on a mid single digit organic revenue growth target, which came in at 5% growth.

Passing its success onto shareholders is the main focus for PepsiCo. Shareholders received a highly appealing cash return total in 2015 of over $9 billion. In a cumulative 10-year period, shareholder cash return is over $65 billion. PepsiCo is planning to raise dividend for the 44th consecutive year when it pays dividends in June this year.

PepsiCo is heavily invested in digital marketing and advertising and has invested over $30 billion in 2015 on key distribution and merchandising to guarantee its relevance in store positioning.

PEP revenue chart

Source: PepsiCo Revenue Chart by amigobulls.com

In North America, PepsiCo faces a favorable macro environment in snacks and beverages segment and was the single largest contributor to the U.S in retail sales growth in food and beverage segment. PepsiCo is about twice as large as its largest competitor in North America. For the full year, PepsiCo's organic growth stood at 8%. PepsiCo’s growth focus is on Latin America, but despite current macroeconomic conditions, PepsiCo has managed to report strong performance with even more ambitious growth expectations going forward. It may be a while before results will show up for its efforts in Latin America, but all signs point to success.

PepsiCo’s main focus is clearly to generate value for shareholders, and this was even specified in the earnings call. With a dividend yield of 2.8% and trading over 20 times its forward earnings estimates, PepsiCo stock is a solid long-term addition to any portfolio for food and beverage.

I expect PepsiCo to continue its higher single-digit growth in both its returns and profit margin, as it has managed to do in this unstable macroeconomic environment for years.

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Comments on this article and PEP stock

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"PepsiCo is about twice as large as its largest competitor in the North America"

Based on what? Revenue for carbonated products vs Coke? Total revenue? Who is their largest competitor?
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