PEP Stock To $110?
PepsiCo (NYSE: PEP) recently published its fiscal first-quarter results, demonstrating a mixed performance relative to Wall Street expectations. The company announced revenues of $17.9 billion, slightly surpassing the expected $17.8 billion, though earnings per share (EPS) of $1.48 fell just short of the $1.49 consensus. These results indicate a 2% year-over-year decline in sales and a drop in earnings of 8%, reflecting a challenging beginning to the fiscal year.
Following this announcement, PepsiCo's stock saw a 3% decrease on Thursday, April 24th. This drop seems to be partially driven by a less favorable outlook for the rest of the year. While the company anticipates low single-digit organic revenue growth, it has adjusted its earnings forecast downward to flat year-over-year, a notable change from the previously expected mid-single-digit increase.
An in-depth examination of PepsiCo's organic business performance shows a 2% decline in volume, countered by a 5% rise in pricing. Regionally, the company faced challenges with North American consumer demand but gained from strong international sales growth.
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Apart from PepsiCo's specific earnings, the prevailing macroeconomic climate poses considerable challenges. Escalating economic concerns in the United States, worsened by the current administration's implementation of tariffs, are fostering a negative environment for the broader markets. It is improbable that any major stock, including PepsiCo, will remain completely insulated from these circumstances.
Historically, PepsiCo's stock has shown a certain level of resilience during economic downturns, often outperforming the benchmark S&P 500 index regarding percentage decline. Analyzing recent crises offers important context:
Despite this historical outperformance, the current combination of weak demand and tariff-related uncertainties necessitates careful consideration. PepsiCo's year-to-date stock decline of 7% already highlights investor concerns.
Several elements contribute to the existing cautious outlook:
Considering the 2020 market downturn as a possible reference point, a similar percentage decline (around 30%) from PepsiCo's previous highs this year might drive the stock below $110.
This invites a crucial question for shareholders of PEP stock: If a significant market downturn brings the stock toward or beneath $110, will you uphold your position or feel compelled to sell? Grasping your risk tolerance amidst potential volatility is vital in the current unpredictable economic atmosphere.
Holding on to a declining stock is not always straightforward. Trefis collaborates with Empirical Asset Management, a Boston-based wealth manager whose asset allocation strategies yielded positive returns even during the 2008/2009 period, when the S&P lost over 40%.
Empirical has integrated the Trefis HQ Portfolio in this asset allocation framework to provide clients better returns with less risk versus the benchmark index; offering a smoother ride, as evidenced by HQ Portfolio performance metrics.
While investors hope for a soft landing for the U.S. economy, how severe could the consequences be if another recession occurs? Review the last six market crashes compared.
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