Goldman Sachs analyst Bonnie Herzog reiterated a Buy rating on the shares of PepsiCo Inc (NASDAQ:PEP) with a price target of $195.
PEP delivered mixed second-quarter results, with softer-than-expected organic revenue growth that was more than offset by strong gross margin expansion, leading to an EPS beat, said the analyst.
According to the analyst, organic volumes were under a bit more pressure than expected, down -3%, and were sequentially lower.
The Frito Lays North America segment results were largely as expected and were broadly in-line with recent Nielsen trends, noted the analyst.
The analyst noted that some PepsiCo Beverages North America volume headwinds likely remain attributed to management's decision to eliminate some non-profitable promotions in the at-home water category.
The analyst is encouraged by management's initiatives to further elevate productivity initiatives, as well as disciplined commercial investments that could stimulate growth.
The management's update of FY24 organic sales growth guidance range to ~4% was broadly anticipated based on conversations with investors ahead of the print, and should be viewed as more realistic, said the analyst.
The analyst notes PEP remains very well positioned given its strong brand portfolio and long-term growth opportunities in Beverages.
Overall, the analyst deems PEP should be able to deliver sustainable average annual mid-single-digit organic sales growth in the next decade.
The analyst's 12-month price target of $195 is based on an equal-weighted P/E of 22.3x and EV/EBITDA of 16.1x multiples, both on the analyst's FY25 estimates.