Pepsico stock market article

PepsiCo has rallied almost in a straight line during the ongoing 8-year bull market. This has led some investors to consider shorting the stock. PEP has rallied almost in a straight line during the ongoing 8-year bull market. This breathless rally and the resultant rich valuation of the stock have led some investors to consider shorting the stock.

However, in this article, I will analyze why investors should not short this stock.

First of all, it is true that PepsiCo is facing some headwinds, which have led some investors to consider shorting the stock. More specifically, due to the increased health consciousness of consumers, the market of carbonated drinks is in a secular decline.

To be sure, the consumption per capita has fallen to its lowest level since Moreover, some countries and US states have markedly boosted their tax on sweet beverages, as they need to reduce their budget deficits.

This trend is likely to get worse, as more countries and US states are likely to follow.

A Pepsi Stock Split Could Happen Anytime - PepsiCo Inc. (NYSE:PEP) | Seeking Alpha

Therefore, the flagship product of PepsiCo is in a secular decline. Nevertheless, investors should realize that the stalwart has done its best to diversify and become less dependent on its flagship product. In addition, as the demand for this product is pronouncedly inelastic, the company has been able to hike its prices every year and has thus offset the effect of the declining consumption per capita.

The latter is also partly offset by the growth of population. Therefore, the results of PepsiCo are protected from the declining consumption per capita of its flagship product.

Some investors may claim that the US market is saturated for PepsiCo, as most of its brands are mature. However, while this is mostly true, the beverage stalwart continues to meaningfully grow in emerging markets, such as China, India and Russia.

These countries experience meaningful population growth while an increasing number of their citizens adopts the lifestyle of people who live in developed countries every year. Therefore, PepsiCo is not anywhere close to exhausting its growth prospects any time soon.

It is also worth noting that the company does not rest on its laurels. As a result, it has expanded its operating margin from Therefore, those who are bearish on the stock should think twice before selling it short.

Short sellers should also realize that they incur the cost of the dividend in every fiscal quarter. As PepsiCo is a dividend aristocrat that has raised its dividend for 45 consecutive years, it is likely to continue to raise it for many more years.

Moreover, even if the company faces some unforeseen headwinds, it will be able to maintain its dividend via issuance of new debt, as its balance sheet is not extremely leveraged.

Therefore, the beverage giant can maintain its generous shareholder distributions much longer than the short sellers can afford to keep paying for them. It is also remarkable that PepsiCo is not excessively overvalued.

Pepsico, Inc. Common Stock (PEP) Real-Time Stock Quote - omenejomy.web.fc2.com

In fact, as the stock is popular for its reliable dividend growth under any economic conditions, the stock almost always enjoys a premium valuation. Moreover, thanks to its reliable growth, the stock is characterized by low volatility and a low beta 0. Therefore, as time works strongly against the short sellers of the stock, the latter have low chances of witnessing a pronounced plunge of the stock and hence they are not likely to profit from their short positions.

Finally, there has been increased takeover activity in the food sector. To be sure, Kraft-Heinz NASDAQ: KHC recently attempted to acquire Unilever NYSE: UL and Mondelez NASDAQ: MDLZ tried to acquire Hershey NYSE: HSY but both attempts failed. The CEO of Kraft-Heinz has repeatedly mentioned that the growth strategy of the company revolves around takeovers and their resultant synergies.

Consequently, one can rest assured that Kraft-Heinz is still looking for its next takeover target. Coincidentally, while I was reviewing this article for the last time, Bernstein reported that PepsiCo would be a suitable takeover target for Kraft-Heinz thanks to the above mentioned attributes of PepsiCo.

While the odds of a takeover of PepsiCo are low, they are not negligible. And if PepsiCo is eventually acquired, it will do so at a high premium. This is an upside risk that the short sellers should not underestimate, particularly given the record number of acquisitions in recent years.

To sum up, while the flagship product of PepsiCo is in a secular decline and under a tax attack in many regions, the company is becoming less and less dependent on this product ever year. In addition, the expansion in emerging regions and the cost-cutting measures have kept the earnings per share in a growth trajectory. Therefore, as short sellers of the stock incur a high time cost due to the generous dividend, I do not recommend short selling this stock.

PEP Stock Price - PepsiCo Inc. Stock Quote (U.S.: NYSE) - MarketWatch

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it other than from Seeking Alpha. I have no business relationship with any company whose stock is mentioned in this article. Long Ideas Short Ideas Cramer's Picks IPOs Quick Picks Sectors Editor's Picks. Don't Short It Jun. Summary PepsiCo has rallied almost in a straight line during the ongoing 8-year bull market. However, in this article, I will analyze why investors should not short PepsiCo.

Among other factors, PepsiCo may be acquired by Kraft-Heinz or Berkshire Hathaway. Want to share your opinion on this article? Disagree with this article? To report a factual error in this article, click here. Follow Aristofanis Papadatos and get email alerts.