Strong Growth Supports Its Valuation – TipRanks Financial Blog

PepsiCo (NASDAQ:PEP) continues to impress, with the company’s organic growth remaining very strong. The food and beverage giant’s brands, which include Pepsi, Lays, Tropicana, Quaker, and other iconic names, experience exceptional demand. Hence, recent strategic price increases have been well-received by the market, leading to a strong boost in its top and bottom-line metrics. In fact, PepsiCo’s improving profitability prospects appear to justify the stock’s seemingly rich valuation. I am bullish on PEP stock.

Organic Growth Driven by Robust Demand, Pricing Power

PepsiCo’s most recent results shine a spotlight on its exceptional performance, fueled by solid demand for its brands and unwavering pricing strength. In the face of inflation, PepsiCo stands resolute thanks to consumers who are inclined to trim discretionary spending before sacrificing their cherished beverages and snacks. Indeed, PepsiCo adeptly leveraged last year’s inflationary landscape to implement pricing hikes, all the while observing consumers’ demand holding steadfast.

Specifically, PepsiCo’s Q2 revenues grew by 10.4% year-over-year to $22.3 billion. The company’s growth was driven by organic growth of 13%, partially offset by a 2.5% foreign exchange headwind. Seeing a company as mature as PepsiCo posting such vibrant organic growth is incredibly impressive. This is particularly true when taking into account that Q2 marked the seventh consecutive quarter in which PepsiCo has delivered double-digit organic revenue growth.

PepsiCo’s robust organic revenue growth can be primarily attributed to increased prices. On the flip side, the enduring demand for its non-cyclical products, such as oats, underscored its resistance to economic cycles. The competitiveness of the company’s brands was also showcased. Remarkably, despite double-digit price increases, PepsiCo saw only marginal declines of 3% in convenient food volumes and 1% in beverage volumes.

Management expects strong organic growth to persist through the year’s second half. In fact, it boosted its full-year organic growth estimate to 10%, up from 9% previously. Increased confidence can be attributed to some of Pepsico’s emerging markets. Mexico, for instance, is currently experiencing near-all-time-low unemployment, while PepsiCo’s brands are becoming increasingly popular in Asian markets. Europe is also performing strongly, with organic growth in Q2 reaching 19%.

Seemingly…