PepsiCo (PEP) investors have endured a tough year. The stock is down about 15% year-over-year, trailing the S&P 500’s nearly 18% gain and lagging behind rival Coca-Cola (KO), which has slipped less than 5%. With the Q3 2025 earnings report due this Thursday, sentiment around the stock remains divided. I share that uncertainty and am maintaining a Neutral stance ahead of this pivotal quarterly update.
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Earnings Preview: Expectations Look Vulnerable
Wall Street expects PepsiCo to report Q3 revenue of $23.86 billion and EPS of $2.26. Over the past 12 months, analysts have trimmed their EPS forecasts by nearly 8% and reduced revenue expectations by about 4%. The company has beaten revenue estimates in all but one of the last eight quarters, yet, I believe the setup for this quarter remains difficult.
The Street’s focus heading into results centers on three areas: potential bottler refranchising, cost-cutting measures, and portfolio streamlining — all themes tied to Elliott’s recent involvement. However, in my view, none of these initiatives will meaningfully offset Pepsi’s growth challenges at Frito-Lay, which remain the company’s most pressing issue.
Elliott’s Push: Big Promises, Bigger Uncertainties
In early September, the Wall Street Journal reported that Elliott Investment Management had built a $4 billion stake in PepsiCo, reportedly the hedge fund’s largest-ever equity position. The activist aims to “boost the company’s sagging share price” through operational changes and structural reform.
Elliott proposed to return company-owned bottling operations to independent franchisees (mirroring Coca-Cola’s successful strategy) and potentially split PepsiCo into two entities — food and beverage — to “unlock value” in its beverage arm. While such moves might simplify operations and raise margins in the long run, I believe execution risk is high. Bottling divestitures are expensive and time-consuming, likely weighing on margins and profitability for several quarters.
Moreover, activists often move quickly if their plans don’t deliver results, which means PepsiCo could face volatility if Elliott shifts course.
Ultimately, the narrative sounds appealing, but the key question is whether management can translate ideas into execution. For now, I view Elliott’s involvement as a mixed catalyst — one that adds pressure but not necessarily a near-term earnings lift.
Frito-Lay: From Crown Jewel to Problem Child
I believe the real problem isn’t Pepsi’s beverages — it’s Frito-Lay North America, once the company’s growth engine. Frito-Lay grew at an 8% compound annual rate between 2019 and 2023, but recent quarters have shown stagnation. Snack volumes are declining in the low single digits, as consumers push back against higher prices and inflation-fatigued shoppers opt for smaller packs or private labels.
Large bag sizes (7–11 oz), which account for about 40% of Frito’s volumes, have been the biggest drag, while personal-sized bags are growing — a sign consumers still want the brand but not at current price points. Surveys indicate that price increases are the primary reason consumers have reduced their chip purchases across all income groups.
Frito-Lay’s distribution model relies heavily on volume growth to maximize efficiency and expand margins. Without that, PepsiCo loses operating leverage. I believe the company will need to reinvest in price and promotions, which could pressure near-term margins.
Another structural challenge: Pepsi’s heavy reliance on salty snacks. Frito-Lay controls roughly 58% of the U.S. salty snack market, but the overall category has been losing share within the broader snacking industry — down 125 basis points this year — while healthier, protein-based snacks, such as bars and meat products, gain traction.
This imbalance makes diversification critical. Fixing it will require time, capital, and likely lower EPS growth in the near term.
PepsiCo Still Looks Pricey Despite $150 Fair Value Estimate
Even after sliding 15% over the past year, PepsiCo’s stock still isn’t cheap. Its GAAP P/E ratio of 25.9 stands above the sector median of 21.5, while its EV/EBITDA multiple of 14.0 also tops the industry average of 11.2. After running 15 valuation models — including DDM, P/E, and a five-year DCF Growth Exit — I estimate a fair value of $150 per share, suggesting only about 5.6% upside from current levels. That offers minimal margin for error ahead of earnings.
Is PepsiCo a Buy or Sell?
According to a cross-section of Wall Street analysts ranked by TipRanks, PepsiCo carries a Moderate Buy consensus rating, based on 14 recent analyst reviews: 5 Buys, 9 Holds, and no Sells. PEP’s average stock price target stands at $156.85, implying a potential 12% upside from current levels, with targets ranging from $140 to $170.
PepsiCo Faces an Uphill Battle as Frito-Lay Struggles Persist
Heading into Thursday’s earnings report, I’m skeptical the company can deliver an upside surprise. Frito-Lay’s pricing and volume issues appear to be persistent, and even activist involvement from Elliott may take years to yield meaningful results. While Pepsi’s valuation is not extreme, it’s also not cheap. With shifting consumer tastes, rising competition, and structural challenges in its North American snack division, the near-term setup looks balanced at best.
For now, I’m staying Neutral on PepsiCo until there’s more unmistakable evidence that management can reignite growth at Frito-Lay.