Buy the Spike in Pepsi Stock After Exceeding Q3 Expectations?

Core Viewpoint - Pepsi has reported favorable Q3 results, showcasing resilience through strategic innovation, cost-cutting, and pricing power despite industry challenges [1][3]. Financial Performance - Q3 sales reached $23.93 billion, a 2% increase from $23.31 billion in the same quarter last year, surpassing estimates of $23.87 billion [3]. - Q3 earnings per share (EPS) were $2.29, exceeding expectations of $2.27, although down from $2.31 a year ago [3]. - The company has exceeded top and bottom line expectations in three of the last four quarters, with average sales and earnings surprises of 0.57% and 1.12% respectively [4]. Product Innovation - Pepsi is differentiating itself from Coca-Cola by expanding into food and snack products, focusing on health-conscious innovations such as removing artificial ingredients and introducing protein-fortified items [7]. - The company is also increasing its presence in zero-sugar beverages and exploring fiber-enhanced snacks and drinks [8]. Guidance and Outlook - Pepsi expects improved profitability in its North America segment, reaffirming a full-year organic revenue growth forecast of approximately 4% but anticipating a 0.5% decline in EPS for fiscal 2025 [9]. - Zacks projects a dip in EPS to $8.05 in FY25, with a rebound expected in FY26 to $8.50 per share [10]. Stock Performance and Valuation - Despite a recent stock spike of +8%, Pepsi is still down nearly 2% year-to-date, trailing the S&P 500's +15% and Coca-Cola's +8% [12]. - Pepsi's stock is trading at 18X forward earnings, in line with the industry average, and at a discount to Coca-Cola's 22X [13]. - The stock is also trading near a preferred level of less than 2X forward sales, comparable to the industry average [14]. Dividend and Shareholder Returns - Pepsi offers an attractive annual dividend yield of 3.93%, surpassing Coca-Cola's 3.07% and the S&P 500's average of 1.1% [16]. - The company has a strong history of dividend increases, with a 7.65% annualized growth rate over the last five years, and plans to return $8.6 billion to shareholders in 2025 through dividends and buybacks [17].