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Understanding PepsiCo’s Risk Factors

New York-based PepsiCo (PEP) is a multinational food and beverage company. Its brands include namesake drink Pepsi-Cola, Tropicana, and Quaker.

For Q4 2021, PepsiCo reported a 12.4% year-over-year jump in revenue to $25.2 billion, surpassing the consensus estimate of $24.2 billion. It posted adjusted EPS of $1.53, which rose 4% year-over-year and beat the consensus estimate of $1.52.

PepsiCo plans to distribute a quarterly dividend of $1.075 per share on March 31. It has set March 3 as the ex-dividend date. PepsiCo stock currently offers a dividend yield of 2.58%, compared to a sector average of 1.5%.

With this in mind, we used TipRanks to take a look at the risk factors for PepsiCo.

Risk Factors 

According to the new TipRanks Risk Factors tool, PepsiCo’s main risk category is Legal and Regulatory, with 7 of the total 29 risks identified for the stock. Production and Macro and Political are the next two major risk categories with 6 and 5 risks, respectively. PepsiCo has recently added one new risk factor and updated several previously highlighted risks. 

In the newly added risk factor, which falls under the Production category, the company draws attention to the challenges regarding its manufacturing operations. It cautions that manufacturing could be disrupted and could result in increased expenses and lost revenue. It explains that it sources many of the raw materials and other supplies for its manufacturing from countries struggling with political instability, hard economic conditions, or civil unrest. 

The company relies on a limited number of suppliers for important materials for its production operations. If PepsiCo is unable to secure sufficient materials for its manufacturing, its product supply could be interrupted, harming the business. Supply chain challenges could also lead to higher material costs. PepsiCo cautions that its profitability could be reduced if it is unable to raise its product prices to offset the additional costs.

In an updated Legal and Regulatory risk factor, PepsiCo stresses the challenge of operating under tightening regulations related to packaging waste. It explains that its efforts to encourage sustainable packaging solutions have resulted in authorities in various countries issuing various requirements and restrictions regarding packaging. It mentions bans on certain types of plastic packaging, taxes on plastic packaging, and recycling requirements.

PepsiCo cautions that the tightening packaging regulations could increase its costs and adversely affect the demand for its products. It further cautions that improper disposal of packaging waste tied to its brands could result in negative publicity, lawsuits, and reduced demand for its products.

PepsiCo stock has gained 21% over the past 12 months.

Analysts’ Take

DZ Bank analyst Axel Herlinghaus recently downgraded PepsiCo stock to a Hold from a Buy. The analyst assigned the stock a price target of $180, which suggests 8.24% upside potential.

Consensus among analysts is a Moderate Buy based on 6 Buys and 7 Holds. The average PepsiCo price target of $180.46 implies 8.51% upside potential to current levels.

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