PepsiCo (PEP 0.11%) The stock was a big winner for investors in 2022. The snacks and beverages giant managed positive returns even S&P 500 19% decreased.
This outperformance can be attributed to Pepsi’s strong and accelerating sales growth and its ability to raise prices without sacrificing much in the way of sales volume.
But what about 2023 and beyond? Let’s take a look at whether Pepsi can build on its positive momentum in the coming years while generating market-thumping returns for its shareholders.
PepsiCo is likely to post record sales in 2028. The company is on track to grow organic sales by 12% in 2022, marking a solid acceleration from the previous year’s blazing 10% growth. Part of that boost includes temporary lifts such as price increases and a generally positive sales environment for packaged foods and beverages. rival coke (Huh -0.19%) Its outlook was raised recently after sales jumped 16%.
However, PepsiCo’s success is driven by fundamental strengths. Sales volume rose 3% last quarter even as prices rose. The company has won market share across several large niches, including energy drinks, snacks and breakfast foods. These wins indicate that the business will be much larger in 2028 than its current annual sales level of about $85 billion.
Cash and profit
Investors will see strong earnings and cash returns over the next few years. Pepsi has generated more than $10 billion in operating cash in each of the past two full years and is likely to approach double digits again in 2022.
That river of cash flow means the company can invest aggressively in its growth projects, such as pushing into more energy drinks, sparkling water and premium snack foods. This means more direct returns for shareholders.
Pepsi will provide investors with about $8 billion in 2022, mainly through its dividend payments. And that dividend will almost certainly rise again in February, just as it has in each of the last 50 consecutive years.
Still a good value
As you might expect, investors are being asked to pay a premium for this stable business that boasts above-average growth and earnings potential. Unlike most stocks right now, Pepsi’s price-to-sales ratio isn’t sitting near multi-year lows. At roughly 3 times sales, you’re paying a lot more for the stock today than you paid at most points in the last decade.
Still, Pepsi is growing faster year-over-year, and its performance during the pandemic and its immediate aftermath demonstrates how the company can generate strong sales and earnings through a wide range of sales conditions.
That flexibility is valuable, especially as we enter what could be a recession at some point in the next few quarters. PepsiCo has navigated dozens of consumer spending pullbacks in the past without being forced to cut its dividend or dramatically restructure the business. Investors have good reason to expect similar success from the consumer staples giant over the next five years.
Dimitri Kalozeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends the following options: Long the January 2024 $47.50 Coca-Cola call. Motley Fool has a revealing policy.