PepsiCo’s Stock Price is Disconnected From Reality: Time to Buy

Key Points

• PepsiCo faces headwinds and has cut its guidance, but this market is overcorrecting and opening up a deep value opportunity.
• Cash flow is sufficient to sustain financial health and capital returns, including distribution increases. 
• The long-term outlook includes a forecast for a valuation rebound that could more than double the stock price from April 2025 lows over time.

PepsiCo’s NASDAQ: PEP stock price is under pressure in H1 2025 and may move below the lows set in late April. The technical action is weak. The market looks set to extend the decline to $130 or lower and could reach the $120 level before the correction is over.  However, this market is seriously disconnected from reality, and offers an entry point for dividend growth investors they build a cushy retirement with.

Trading near $135, the market aligns with levels not seen since 2020, during the height of pandemic fear, and in 2019, when the business was 40% smaller than it is today. 

Yes, PepsiCo faces headwinds in 2025 and the business is contracting, but it's not imploding, and the sell-off is overdone. Headwinds for this consumer staple will ease over time, and PepsiCo will be able to regain traction, helping its stock move back toward the high end of its valuation range.

This could result in a potential stock price gain of 65% relative to the 2025 outlook, excluding the impact of dividends and share repurchases. 

PepsiCo’s capital return is significant and one of the drivers of the stock price in the long term. The dividend was worth $5.44 in F2024 and is expected to grow at a 5% pace in 2025. The payout ratio is running high in 2025, at around 70%, but is sustainable in light of long-term trends and share repurchases.

The share buybacks are also significant, reducing the count by 0.36% in FY2024 and 0.3% year-over-year (YOY) in Q1 FY2025. The company is expected to continue buying shares similarly in 2025. 

PepsiCo’s Headwinds Are Not a Doomsday Situation

PepsiCo issued mixed results for Q1 and softened its profit outlook due to the impact of tariffs. However, the company’s Q1 results aren’t terrible, and the guidance is sufficient to sustain the financial outlook. The critical details include revenue, which fell 1.8% in Q1 but remains near historically high levels. The quarterly revenue also outpaced MarketBeat’s reported consensus by 100 basis points and is expected to remain solid this year. 

Organically, PepsiCo grew by 1.2% on gains in North American Beverage, International Beverage, EMEA, and Latin America. Weaknesses were seen in PepsiCo Foods North America and Asia-Pacific but were insufficient to offset the strengths. FX conversion shaved 300 bps off the result, and food sales were weak across the system. 

Margin news is among the details impacting the stock price in late April. The company is experiencing margin pressure and forecasts it to continue due to tariffs and increased supply chain costs.

The adjusted earnings were down 4% in Q1, compared to a 1.8% top-line decline and organic growth, coming up just a penny short of the analysts' forecast, impacting the guidance. The company reaffirmed its 2025 revenue outlook but trimmed its earnings forecast, expecting earnings to be flat to slightly down compared to the previous year. 

Analysts Reset PepsiCo Stock Price Targets: Market Overcorrects

Analysts' trends in 2025 are aiding the downdraft in PepsiCo share prices, but the market is overcorrecting. The lowest price target tracked includes a fresh low set following the guidance update of $240. This puts PepsiCo in deep value territory for yet another reason, increasing the odds for a robust rebound over time.

It may take a few quarters for the market to reach bottom, stabilize, and prepare for the next leg higher, but it will come, and new highs will be set. Regarding analysts' sentiment, they show an increasingly firm conviction in the Hold rating, with coverage rising by seven analysts, or 64%, since early 2024, and forecasting a 25% increase at the consensus.