Strong international growth, productivity improvements, an aggressive share repurchase program, and a strong new product pipeline are driving low double-digit earnings growth for PepsiCo (PEP).

Nevertheless, a sluggish domestic carbonated beverage environment, only modest low-single digit volume growth at Frito-Lay, and pressure from higher energy and raw material costs (especially orange and grain costs) are concerns. The Hold recommendation is maintained.

PepsiCo stock is currently selling at 20.7 times trailing 12-month EPS, reflecting the company’s growth profile, primarily due to the significant exposure to the snack food category. Carbonated soft drink volume in the U.S. soft drink market has declined for the last four years. We do not expect PepsiCo stock to outperform until expectations for volume growth at FLNA accelerates to 5% or more. The target price of $78 is based on a 22 P/E on trailing 12-month earnings.

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“PEP” Free Stock Analysis: Buy? Sell? Hold?
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