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PepsiCo Inc PEP

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Even With Stout Sales, Margins Fizzle for Wide-Moat PepsiCo in Q3; Shares Fairly Valued

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

The strength of PepsiCo’s brand intangible assets was on display in the third quarter, as organic sales popped 9%, on top of 5% growth in the year-ago period and up more than 13% from the prepandemic period in 2019. This performance is even more laudable, given the balanced contribution from higher prices and favorable mix (a 5% benefit) as well as increased volumes (up 4%). We attribute these gains to the firm’s astute focus on upping the ante as it relates to investments in consumer-valued innovation and marketing, which we view as key to winning in the intensely competitive food and beverage aisles in which it plays.

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Company Profile

Business Description

PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The firm segments its operations into five primary geographies, with North America (comprising Frito-Lay North America, Quaker Foods North America, and North America beverages) constituting over 60% of consolidated revenue.

700 Anderson Hill Road
Purchase, NY, 10577
T +1 914 253-2000
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Sep 30, 2021
Fiscal Year End Dec 25, 2021
Stock Type Classic Growth
Employees 291,000