Is PepsiCo an Opportunity After Elliott’s $4B Stake Shakes Up Strategy?

If you have been tracking PepsiCo’s stock lately, you might be wondering if it is time to double down, hold tight, or explore other opportunities. Recent weeks have been anything but calm for PepsiCo investors. The stock has slipped about 5.5% in the past month and is down 14.2% over the last year, even though its five-year return still sits at a respectable 18.4%. This dip is catching the attention of both cautious investors and bold bargain hunters alike.

The drama has been intensified by Elliott Investment Management, which recently revealed a $4 billion stake in PepsiCo and is pushing for big strategic shifts. This kind of activist involvement tends to shake things up and has the potential to reignite growth, or at least spur some serious debate about the best path forward. In addition, PepsiCo’s move to lift its stake in Celsius Holdings and plans to raise U.S. soft drink prices suggest leadership is not standing still, even as the market tests their resolve.

So, what is PepsiCo really worth at these levels? By the numbers, the company currently passes 3 out of 6 undervaluation checks in our assessment, landing it a moderate value score of 3. But the story goes deeper than any single score. Next up, let’s break down these valuation checks, and then I’ll walk you through an even smarter way to see if PepsiCo stock actually fits your strategy.

Why PepsiCo is lagging behind its peers

Approach 1: PepsiCo Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model aims to estimate a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This method tries to answer a simple question: based on PepsiCo’s expected financial performance, what should its stock be worth right now?

PepsiCo’s latest twelve months Free Cash Flow is approximately $6.8 Billion. Analyst forecasts suggest growth in these cash flows, with projections estimating Free Cash Flow to reach about $10.2 Billion by 2029. While professional analyst estimates extend up to five years, further projections up to 2035, provided by Simply Wall St, continue this positive trend and highlight PepsiCo’s robust underlying business.

Using a two-stage Free Cash Flow to Equity DCF model, the fair value per share is calculated at $177.37. This implied intrinsic value is 20.8% above where the stock currently trades, indicating a notable discount.

Given this margin, the numbers suggest PepsiCo shares are undervalued on the basis of discounted cash flows.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PepsiCo.

Our Discounted Cash Flow (DCF) analysis suggests PepsiCo is undervalued by 20.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: PepsiCo Price vs Earnings (PE Ratio)

The Price-to-Earnings (PE) ratio is a go-to valuation metric for profitable companies like PepsiCo because it shows how much investors are willing to pay for each dollar of the company’s earnings. For established, steadily profitable companies, the PE ratio offers a straightforward way to compare value within the industry and across different stocks with similar risk profiles.

However, what counts as a “normal” or “fair” PE ratio varies depending on a company’s expected earnings growth and the risks it faces. High-growth, lower-risk companies typically command higher PE ratios, while slower-growing or riskier businesses trade on lower multiples.

PepsiCo currently trades at a PE ratio of 25x. That is just above its peer average of 25x, and well above the industry average of 17x for beverage companies. At first glance, this may seem a bit expensive compared to typical sector multiples. However, to get a true sense of fair value, it can be helpful to look beyond surface-level comparisons.

Simply Wall St’s proprietary “Fair Ratio” is designed to do just that. This metric adjusts for PepsiCo’s specific growth outlook, profit margin, risk factors, and even considers its size and industry. Unlike simple peer or industry averages, the Fair Ratio gives a more nuanced benchmark tailored to PepsiCo’s actual prospects and characteristics. For PepsiCo, the Fair Ratio is calculated at 29x, suggesting the stock deserves a higher multiple because of its quality and stability.

Since PepsiCo’s current PE ratio (25x) is below this Fair Ratio (29x), the shares actually appear undervalued on a relative basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your PepsiCo Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your unique view on a company, combining both your story (your perspective on trends, risks, and opportunities) and your numbers (your fair value and assumptions for future revenue, earnings, and margins).

Narratives make investing more personal and powerful by linking a company’s real-world business story to specific forecasts and a calculated fair value. Instead of just relying on generic metrics or analyst targets, you get to build and track your own scenario. You can then compare your fair value to the current price to see if you think it's time to buy, hold, or sell.

Anyone can create, edit, and follow Narratives on Simply Wall St's Community page, where millions of investors share perspectives in real time. Narratives update dynamically whenever major news or earnings come out, which keeps your outlook current and responsive.

For example, one investor may see PepsiCo’s stable margins, international expansion, and strong innovation pipeline and estimate fair value at $160. Another investor, concerned about slow adoption of healthier products or margin pressure, sets fair value closer to $115.

Do you think there's more to the story for PepsiCo? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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