Pepsi Firing on All Cylinders Heading Into 2021

Since the onset of the pandemic, wide-moat PepsiCo's PEP results have consistently belied the tumult in the global economy, and the company closed 2020 in similar fashion. Beyond solid fourth-quarter results (ahead on revenue and in-line earnings relative to FactSet consensus), management issued guidance consistent with its long-term growth algorithm (mid-single-digit organic top-line growth and high-single-digit earnings growth), which we consider particularly laudable. While there should be countervailing forces in the firm's trajectory over the next couple of years, with businesses like Quaker currently growing at unsustainable levels due to COVID-19, we believe PepsiCo's portfolio breadth and system investments give it tons of optionality in executing its growth and margin aspirations. We'll likely raise our $140 fair value estimate modestly after rolling our model, and with the shares down slightly after the report, attractive entry points could be emerging. We'd recommend quality-oriented investors keep an eye out. Revenue was $22.5 billion, up 8.8% year over year. While this was skewed upward by acquisitions like Pioneer, the organic performance, at 5.7%, was strikingly resilient. It was business as usual for snack food, up 5%, as the Frito-Lay and Quaker brands continue to benefit from elevated at-home meal preparation and incremental snacking occasions. The beverage business posted 6% growth globally, fueled by a 5.5% uptick in the North America segment. When juxtaposed with the North America business of its chief rival, Coca-Cola (down 3% organically), Pepsi's performance looks particularly impressive. While this is largely due to Coke's disproportionate representation in on-premises channels, we also believe PepsiCo CEO Ramon Laguarta and team have done a tremendous job augmenting the growth profile of marquee U.S. beverage brands while carving out brand equity in secularly advantaged categories (like Bubly in sparkling water).

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