PepsiCo trades at 15 times this year's core earnings with a 4.5% dividend, but cut guidance as US drinks stall. I expect a modest recovery and a $136 target, about 6% above the price. Total return roughly tracks the market.
Key points
- 15 times 2026 core earnings (profit excluding one-off items), about $8.39 a share, after a guidance cut.
- 0% organic revenue growth in both North American segments in the third quarter.
- $135.97 target, 6% above the price, plus a 4.5% dividend yield.
The call
The market expects little: at $128.49 the stock costs about 15 times this year's core earnings, near the bottom of its 52-week range. That pricing assumes North American weakness lasts and margins keep shrinking into 2027.
I believe earnings stall, not collapse. International volume is growing and the dividend is covered by cash flow. But hedges are rolling off into higher input costs, and the chief executive says PepsiCo is not competing well in US soft drinks. I expect 2027 core earnings growth of about 4.5%.
Operating margin by reported quarter (%)Source: SEC XBRL fact table in desk briefing, quarters through Sep 5, 2026
Valuation
| Item | Figure |
|---|
| 2026 core EPS (my estimate) | $8.39 |
| 2027 core EPS growth | 4.5% |
| 2027 core EPS | $8.77 |
| Multiple | 15.5 times |
| 12-month target | $135.97 |
I use 15.5 times, a small discount to the market's usual multiple for a steady staple whose growth has stalled. Upside is about 6% in price, near 10% with the dividend. A restructuring of distribution could lift that, but nothing is quantified yet. That is a hold.
Risks
- Input costs rise faster than expected as hedges expire; watch gross margin below 54% in the next two quarters.
- US soft drink share keeps falling despite price cuts; watch North American unit volume and the February 2027 outlook.
- Debt of $51.9 billion limits flexibility if earnings fall; watch commercial paper and interest costs.
What would change my mind
A funded distribution overhaul with clear savings, or a second guidance cut that shows margins still falling.