PepsiCo Falls 15% in 3 Months: Is it a Buy Option or Warning Sign?

PepsiCo Inc. PEP has been facing operational challenges, primarily in its North America market, since early 2024 due to declining consumer demand and product recalls in the Quaker Foods North America (“QFNA”) segment. Consequently, shares of the beverage and snacking big-wig have dropped significantly in the past three months.Shares of PepsiCo have lost 15% in the past three months, underperforming the broader industry and the Zacks Consumer Staples sector’s declines of 11.6% and 9%, respectively, in the past three months. The PEP stock has also underperformed the S&P 500’s rally of 3.4% in the same period.PepsiCo’s 3-Month Stock Price Performance Image Source: Zacks Investment Research PEP shares have underperformed its close competitor The Coca-Cola Company’s KO decline of 9.7% in the past three months. PepsiCo also lagged other industry peers, including Monster Beverage’s MNST 7.8% decline and Keurig Dr Pepper’s KDP 14.4% fall.Currently priced at $148.25, the PEP stock trades close to its 52-week low of $141.51, which reflects a 4.8% premium to the low mark. PepsiCo’s current price indicates a 19.2% discount to its 52-week high of $183.41.The leading beverage company trades below the 50-day and 200-day simple moving averages, indicating a bearish sentiment.PEP Stock Trades Below 50 & 200-Day Moving Averages Image Source: Zacks Investment Research PepsiCo’s Estimate Revision TrendThe Zacks Consensus Estimate for PEP's 2024 EPS was unchanged in the last 30 days, indicating analysts’ expectations for the company's earnings are steady. The stable estimate revision trend suggests no significant developments or changes in the company's outlook to prompt analysts to adjust their earnings forecasts. The consensus estimate for 2025 EPS has moved down 0.2% in the past 30 days.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.For 2024, the Zacks Consensus Estimate for PEP’s sales and EPS implies 0.7% and 7% year-over-year growth, respectively. The consensus mark for 2025 sales and earnings indicates 2.9% and 5.2% year-over-year increases, respectively. Image Source: Zacks Investment Research PEP’s Premium ValuationDespite the recent decline, PepsiCo commands a high valuation, reflecting strength and resilience in core categories, diversified portfolio, modernized supply chain, improved digital capabilities and flexible go-to-market distribution systems. We believe that the stock is overvalued at the current level.PepsiCo is currently trading at a forward 12-month P/E ratio of 17.23X, above the industry average of 17.18X and the Consumer Staples sector’s average of 16.15X. Image Source: Zacks Investment Research The company’s ability to deliver on its promise of offering something for everyone to drink, with a focus on innovation and digital expansion, is crucial. While success in these areas could further strengthen its market leadership, failure could pose serious challenges for this soft drink giant. At this moment, its current valuation seems unwarranted. PEP has a Value Score of C.Decoding PepsiCo’s Share Price DeclineBearish technical signals and stagnant estimate revisions have created uncertainty around PEP's outlook. Ongoing challenges have driven a decline in PepsiCo's share price in the past three months.PEP’s downside comes from its soft top-line performance trends, led by headwinds in the QFNA segment and troubles in the North America markets. The company continues to face challenges in its QFNA segment due to product recalls and weak category performance. The QFNA segment, which includes brands like Quaker Oats, has been affected by recalls tied to contamination concerns, such as Salmonella, involving various cereals and snacks. These issues have reduced sales and profits in recent quarters.The recalls not only disrupted sales but also incurred additional costs, including logistics, communication and potential brand damage. As a result, the near-term recovery prospects for the QFNA segment remain uncertain.The North America convenient foods business has experienced weak demand, led by higher prices and product recalls in the QFNA segment. Revenues were impacted by business disruptions from escalating geopolitical tensions in certain international markets.PepsiCo's aggressive price hikes in response to rising inflation over recent years have pressured volumes as consumers adjust their spending amid economic challenges. Since 2020, the company has raised prices significantly, with snacks and beverages increasing 41% compared with the 25% average for grocery items. This disparity has prompted consumer pushback, leading to reduced sales volumes, particularly in the salty snacks and carbonated beverages categories.Is There a Potential for Turnaround?PepsiCo continues to benefit from investments in brands, go-to-market systems, supply chains, manufacturing capacity and digital capabilities to build competitive advantages. The company's international business continues to hallmark its overall performance, delivering significant volume and organic revenue growth in the third quarter of 2024.PEP’s productivity and cost-management initiatives also support its positive outlook. PepsiCo has been continually focused on driving greater efficiency and effectiveness by reducing costs and plowing back these savings to develop scale and core capabilities. The company expects to achieve this productivity goal through savings generated from restructuring actions.Is PEP Stock Still a Buy Opportunity?Investing in the PepsiCo stock requires a thoughtful strategy, especially given the company’s recent challenges in its North America operations and the broader market environment. Recent market data suggests bleak prospects for near-term recovery in its North America business.Trading at a premium P/E, above the industry average, PEP stock looks overvalued at this time. Additionally, its muted estimate revision trend and bearish technical indicators call for a cautious approach for new investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #4 (Sell) stock.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 CocaCola Company (The) (KO): Free Stock Analysis Report PepsiCo, Inc. (PEP): Free Stock Analysis Report Monster Beverage Corporation (MNST): Free Stock Analysis Report Keurig Dr Pepper, Inc (KDP): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks