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PepsiCo Remains A High-Quality Stock And Is Recovering From Its Recent Pullback

PepsiCo (PEP) stock has rebounded quickly from its recent pullback which saw the share price briefly dip below $130 per share.

With a deep economic moat, high margins, and a solid dividend, PepsiCo remains a high-quality stock that could provide a great opportunity for more cautious investors.

PEP is currently trading around $141 per share, just a few dollars below its all-time high, but given how overheated the market has been in anticipation of the post-pandemic recovery, investors should not expect massive gains in the coming year.

However, the possibility does remain for gradual, yet stable gains over the long term and as market participants debate whether a sell-off or a further rally is what comes next, this blue-chip name could provide a great safe harbor for investors.

Why PepsiCo Stock Is Bouncing Back

The recent double-digit sell-off in PEP stock was a consequence of the correction seen across the NASDAQ. With investors becoming skittish about tech stock valuations, the NASDAQ 100 index fell sharply in February and early March.

PEP obviously isn’t a tech company, but it’s still one of the top 15 stocks in the index by portfolio allocation. In short, markets threw out this baby along with the bathwater.

However, shares have quickly bounced back as investors have realized that the sell-off was irrational and that little has changed in terms of the fundamentals of this recession-resistant stock.

Now, as it climbs back up towards all-time highs, where is the stock heading from here? Let’s weigh its merits as a high-quality name against the concerns about its valuation.

Modest Returns Going Forward

After gaining around 18.7% in the past year, could this stock produce similar returns over the next 12 months? Given that the past year has been about the recovery from the pandemic-led market crash in 2020, double-digit returns seem unlikely, but the potential for moderate returns over the next 12 months still remains.

For starters, PEP remains a high-quality stock with a stable full of global food and beverage brands through its PepsiCo Beverage, Frito-Lay, and Quaker Foods divisions. The company boasts high profit margins and deep economic resources.

This will help the company not only grow its earnings at a high single-digit rate of around 8% between 2021 and 2022, but it will also allow PEP to continue to pay and grow its solid dividend. Yielding 2.87% at current prices, the dividend has grown an average of 7.8% over the past five years.

Even if the stock’s current moderate price-to-earnings (P/E) ratio of 23.6x doesn’t benefit from additional multiple expansion, the modest earnings growth, coupled with the dividend yield, could continue to result in satisfactory returns for long-term investors.

What Analysts Are Saying About PEP Stock

According to TipRanks, PEP comes in as a Moderate Buy based on 4 Buy, 3 Hold and 1 Sell recommendations. The average analyst price target of $150.67 implies upside potential of around 7% from current levels over the next 12 months. Analyst price targets range from a low of $136 per share to a high of $161 per share. (See PepsiCo Stock analysis on TipRanks)

Bottom Line: A Top Shelf Stock For Long-Term Investors

After recovering from the recent NASDAQ correction, PepsiCo shares are approaching prior all-time highs. Shares may have gained 20% in the past year, but given its moderate earnings growth projections, investors shouldn’t expect a similar level of gains over the next 12 months.

However, with its status as a high-quality dividend stock, there’s likely enough at play to keep long-term investors happy. This may not result in blockbuster gains, but it could mean moderate returns for PEP stock going forward.

Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

Thomas Niel
Thomas Niel is a freelance writer with an accounting background. An interesting combination to say the least. His understanding of both words and figures pays dividends when writing clear, concise stock analysis.