Buy the Spike in Pepsi Stock After Exceeding Q3 Expectations?

Pepsi PEP is one of the notable enterprise giants that helped kick off the Q3 earnings season on a positive note this week.Exceeding Q3 expectations, the iconic Pepsi brand has been able to sustain through the company’s strategic innovation, cost-cutting initiatives, and pricing power despite many beverage makers facing volume pressures from a more inflation-conscious consumer.Following its favorable Q3 results yesterday morning, Pepsi stock has now spiked +8%, rising as much as +6% in Friday's trading session. However, PEP is still more than 14% from its 52-week high of $177 a share, making it a worthy topic of whether now is an ideal time to buy Pepsi stock for an extended rebound.Image Source: Zacks Investment Research Pepsi’s Favorable Q3 ResultsPosting Q3 sales of $23.93 billion, Pepsi’s top line expanded 2% from $23.31 billion in the prior year quarter and topped estimates of $23.87 billion. On the bottom line, Pepsi posted Q3 earnings of $2.29 per share, topping expectations of $2.27 despite dipping from EPS of $2.31 a year ago.Offsetting a 1% decline in global food and beverage volumes, Pepsi’s effective pricing rose 4%, showing the company is still able to raise prices without losing customers.Pepsi has now exceeded top and bottom line expectations in three of its last four quarterly reports, with an average sales and earnings surprise of 0.57% and 1.12% respectively.Image Source: Zacks Investment Research Pepsi’s Innovative Product LineSeparating Pepsi from chief rival, Coca-Cola KO, has been its expansion into food and snack products, and is now innovating them to center around a more health-conscious customer base. Removing artificial ingredients from Lay’s and Tostitos chips, Pepsi has also rolled out new products like protein-fortified Doritos and Quaker Oats items.Along with this, Pepsi is expanding its presence in zero-sugar beverages, including a lineup of low-sugar Gatorade, as well as pursuing fiber as the “next protein” in a bet on fiber-enhanced snacks and beverages. Pepsi’s Guidance & OutlookAttributed to its cost-cutting initiatives and innovative product line, Pepsi expects improved profitability in its core North America segment. Reaffirming its full-year guidance, Pepsi still expects organic revenue growth of approximately 4% but forecasts a 0.5% decline in earnings per share in fiscal 2025 from EPS of $8.16 last year.Zacks' projections currently call for Pepsi’s EPS to dip to $8.05 in FY25, although FY26 earnings are projected to rebound and rise 5% to $8.50 per share. Based on Zacks' estimates, Pepsi’s total sales are slated to rise 1% this year and are projected to increase another 3% in FY26 to $96.22 billion.Image Source: Zacks Investment Research PEP Performance & Valuation ComparisonAmid the post-earnings rally, Pepsi stock is still down nearly 2% year to date, noticeably trailing the benchmark S&P 500’s +15%, Coca-Cola’s +8% and their Zacks Beverage-Soft drinks Market’s return of +2%.From a longer view, PEP is up a very subpar +6% in the last five years, but has a total return of over +20% when including dividends, although this has largely trailed the broader market, Coca-Cola, and its Zacks sub-industry’s returns of over +40%.Image Source: Zacks Investment ResearchAt current levels, Pepsi stock is starting to stand out at 18X forward earnings, trading roughly on par with its industry average and offering a distinct discount to Coca-Cola’s 22X and the benchmark’s 25X. It’s also worth noting that PEP is trading at a nice discount to its decade-long forward P/E multiple high and median of 27X and 22X.Plus, PEP trades near the preferred level of less than 2X forward sales, which is also on par with the industry average and nicely beneath Coca-Cola’s 6X and the S&P 500’s 5X.Image Source: Zacks Investment Research Pepsi’s Enticing DividendRegarding value and certainly income investing, Pepsi shares are attractive with a 3.93% annual dividend yield that impressively tops Coca-Cola’s 3.07% and the S&P 500’s average of 1.1%.Furthermore, many of its industry peers don’t offer a payout, but like Coca-Cola, Pepsi is a Dividend King, increasing its dividend for more than 50 consecutive years. That said, over the last five years, Pepsi has had a more enticing annualized dividend growth rate of 7.65% compared to Coca-Cola’s 4.84%.Committed to rewarding shareholders through dividends and buybacks, Pepsi expects to return a value worth $8.6 billion in 2025 when including dividends and share repurchases.Image Source: Zacks Investment Research Bottom LinePepsi’s favorable Q3 report does suggest an extended rebound could be in play and could help PEP retain its current Zacks Rank #2 (Buy) rating, which is predicated on rising earnings estimate revisions (EPS).In contrast, Coca-Cola stock lands a Zacks Rank #4 (Sell) at the moment as EPS revisions have trended lower with the beverage giant’s Q3 report scheduled for Tuesday, October 21st.  While Coca-Cola tends to get the nod ahead of Pepsi from value investors, this scenario doesn’t appear to be the case at the moment.  Zacks' Research Chief Picks Stock Most Likely to "At Least Double"Our experts have revealed their Top 5 recommendations with money-doubling potential – and Director of Research Sheraz Mian believes one is superior to the others. Of course, all our picks aren’t winners but this one could far surpass earlier recommendations like Hims & Hers Health, which shot up +209%.See Our Top Stock to Double (Plus 4 Runners Up) >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report PepsiCo, Inc. (PEP): Free Stock Analysis Report CocaCola Company (The) (KO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks