Pepsi (PEP): A Bull Case Theory
We came across a bullish thesis on Pepsi on Rebound Capital's Substack. As of 5ᵗʰ July, Pepsi's share was trading at $135.38. PEP's trailing and forward P/E were 19.91 and 15.69 respectively according to Yahoo Finance.
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Pepsi is a consumer goods company that has underperformed its competitor, Coca-Cola, in recent years. While Coca-Cola has gone up by 103% in the last 2 years, Pepsi is down 24%. Pepsi earns more from its snack division than from its beverages. The company had significantly raised its product prices after its strong results running up to 2023, but persistently high inflation in 2023 meant that consumers cut down on snacks or chose cheaper alternatives to Pepsi.
The company missed its sales forecasts and had to reduce its organic growth projection. Adding to the already weaker demand, Pepsi had to recall Quaker Oats due to a potential Salmonella outbreak. However, the Quaker recall has been fully closed by the FDA, and management has said that Quaker drove strong organic revenue growth in Q1'25. Easing inflationary pressures and improving consumer confidence could boost spending on discretionary items, especially on snacks.
Pepsi's rebound catalysts are promising, with potential for significant upside. The company's recent acquisition of prebiotic soda brand Poppi for $1.95 billion and the growth of its high-margin products, such as Pepsi Zero, Propel functional water, and Gatorade Zero, could lead to increased revenue and profitability. Additionally, the company's efforts to boost volume through smaller packaging could also contribute to its growth.
Previously we covered a bullish thesis on PepsiCo, Inc. by Charts&Companies in May 2025, which highlighted the company’s undervaluation relative to Coca-Cola, stronger capital efficiency, and balanced revenue mix between beverages and high-margin snacks. The company’s stock price has appreciated approximately 2.7% since our coverage. This is because the original thesis is still playing out, but slowly. Rebound Capital shares a similar view but emphasizes recent catalysts such as easing inflation, new product launches, and the Poppi acquisition.
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