PepsiCo (PEP) is likely to report relatively in-line fiscal Q1 results and reiterate its fiscal 2024 guidance, but a “fundamental inflection” is expected in the rest of the year that could drive the stock to outperform, Morgan Stanley said Monday in a report.
“We see Q1 [earnings per share] as the bottom fundamentally for the stock in our minds, and we are looking ahead to improving results in the balance of the year, as comparisons move from difficult to more benign, [short-term] pressure points dissipate, and sequential pricing deceleration dissipates,” the firm said.
Morgan Stanley, which recently upgraded PepsiCo to overweight from equal-weight, also said the market has priced in too much risk following what looked like poor results particularly in Q4 of the previous fiscal year. Thus, valuation now looks “too low.”
The firm said it expects the company’s organic sales growth bottoming at 2.3% in Q1 of the current fiscal year, before inflecting to slightly above peer and consensus in Q2 to Q4.
“While we don’t have a strong call on Q1 per se, we see the risk/reward as positive on Q1 itself, and even more so over the next few quarters before a pending [balance-of-the-year] inflection.