Goldman Sachs maintains Buy rating on PEP; Q2 broadly in line, but FY26 EPS growth may land at the low end of guidance

Overview

This is a Goldman Sachs company research report on PepsiCo Inc. The report states that PEP's Q2 results were broadly in line with lowered market expectations, but performance in North American food and beverage categories slowed. Combined with inflation-driven pressure on consumer budgets, this caused North American organic performance to fall below management expectations. Nevertheless, the company's international business continued to perform strongly, management maintained FY26 guidance, and Goldman Sachs maintained its Buy rating and $180 price target.

Core views

The core view is that PEP's near-term growth momentum is weaker than previously expected, with improvement in North America particularly gradual and FY26 EPS growth potentially landing at the low end of guidance. However, the company still has a strong brand portfolio, international growth opportunities, an innovation pipeline, revenue growth management capabilities, productivity gains, and stable cash returns. Goldman Sachs believes current valuation and sentiment toward PEP are excessively negative, leaving the risk-reward profile favorable.

Analysis framework

The report evaluates PEP's near-term earnings pressure and medium- to long-term growth capabilities through a combination of Q2 earnings analysis, management meeting takeaways, business-segment trends, FY26 guidance, the GS forecast model, valuation multiples, peer comparisons, and HundredX consumer perception data.

Methodology notes

• Valuation methodsP/E and EV/EBITDA valuation

  Relative valuation and price-target derivation

  Goldman Sachs' 12-month price target of $180 is based on equal-weighted P/E of 19.3x and EV/EBITDA of 14.3x using Q5-Q8 estimates, with the target multiples modestly lowered due to slower North American growth.

• alternative_dataHundredX NPS and NCI

  Tracking consumer perception and purchase intent

  The report cites HundredX data covering more than 80 industries, over 3,000 brands, 444K people, and 13.6mn feedback entries, using NPS and net consumer intent to assess consumer trends for PEP relative to the soft-drink category and KO.

• fundamental_analysissegment performance analysis

  Breakdown of organic revenue, volume, and price/mix by business

  The report separately analyzes organic sales, volume, price/mix, and margin performance for PFNA, PBNA, IB Franchise, EMEA, LatAm Foods, and APAC Foods to identify growth drivers and sources of pressure.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PEP.O

  subject_company

  Strengths

  Strong brand portfolio, international business growth, innovation pipeline, revenue growth management capabilities, productivity gains, robust free cash flow, and stable shareholder returns.

  Weaknesses

  North American recovery is slower than expected, PFNA is declining, PBNA volumes are under pressure, and FY26 EPS growth may approach the low end of guidance.

  Comparison

  Approximately an 8x forward P/E discount to KO, significantly wider than the long-term average discount of approximately 1x; also trades at an approximately 5x discount to PG.

  Risks

  Increasing competition, slowing CSD volumes, packaging-related ESG pressure, sugar or soda taxes, and rising input costs.

• KO

  peer_read_through

  Strengths

  The report believes KO's CSD business should benefit from healthy price/mix, with volume trends potentially better than PEP's.

  Weaknesses

  It faces similar pressure from beverage-category demand, pricing, and consumers.

  Comparison

  PEP trades at a sizable forward P/E discount to KO; Goldman Sachs believes part of the discount is justified but that overall sentiment is excessively negative.

  Risks

  If industry volumes or consumer demand weaken, the earnings read-through from PEP to KO could deteriorate.

• KDP

  peer_read_through

  Strengths

  The U.S. Refreshment Beverages business is still expected to be a highlight.

  Weaknesses

  Goldman Sachs remains cautious on the U.S. coffee business because recent scanner data has been weak.

  Comparison

  PEP's Q2 results provide a broadly neutral read-through for KDP.

  Risks

  Weak U.S. coffee demand and softer retail data could weigh on KDP's performance.

• PG

  staples_peer_comparison

  Strengths

  PG is used as a valuation reference among consumer staples peers.

  Weaknesses

  The report does not discuss PG's fundamentals in depth.

  Comparison

  PEP trades at an approximately 5x valuation discount to PG despite similar revenue growth profiles.

  Risks

  If PEP's North American business fails to improve, its valuation discount relative to PG may persist.

Key data

• Q2 organic revenue growth+2.4%In line with Goldman Sachs' expectation of +2.4%, slightly below the VA consensus of +2.6%.
• Q2 EPS$2.20Up 4% year over year, broadly in line with Goldman Sachs' estimate of $2.20 and the FactSet consensus of $2.19.
• FY26 organic sales growth guidance+2%-4%Management maintained guidance, below the company's long-term algorithm of +4%-6%.
• FY26 constant-currency EPS growth guidance+4%-6%Management said EPS growth this year could be near the low end of guidance.
• FY26 core EPS estimate$8.58Goldman Sachs maintained its FY26 EPS estimate.
• FY27 EPS estimate$9.08Goldman Sachs lowered its FY27 EPS estimate by $0.05 to remain conservative.
• Q2 international organic growth+7%International operations account for approximately 40%-45% of consolidated revenue and profit.
• PFNA Q2 organic revenue growth-2.0%Below Goldman Sachs' flat expectation and the market expectation of +0.1%.
• PBNA Q2 organic revenue growth+1.0%A 3% positive price/mix offset the pressure from a 2% volume decline.
• Free cash flow conversion>80%The company expects free cash flow conversion to exceed 90% in 2027.
• Price target$180.00Represents 30.6% upside from the current price of $137.86.

Impact & implications

The report's implications for PEP stock are broadly positive: the share price may remain pressured in the near term by a slow North American recovery, EPS growth weighted toward 4Q in 2H, cost inflation, and consumer pressure. However, Goldman Sachs believes strong international operations, productivity savings, brand investment, innovative products, and the valuation discount can support a medium- to long-term re-rating. Read-throughs for KO and KDP are broadly neutral; beverage price/mix is expected to remain healthy, but KO volumes may outperform PEP, while caution remains warranted regarding KDP's U.S. coffee business.

Risks

• A slower-than-expected improvement in North American food and beverage operations could limit a share-price re-rating.
• Input cost inflation in 2H could exceed 1H levels, making EPS growth highly dependent on 4Q execution.
• Inflationary pressure could tighten consumer budgets, affecting purchase frequency and category demand.
• Competitive pressure in snacks and beverages could intensify.
• CSD volumes could experience a material slowdown.
• Packaging-related ESG pressure and sugar or soda taxes could increase operating pressure.
• Rising input costs could compress gross and operating margins.
• HundredX data shows that PEP's NPS and net purchase intent have recently lagged the category and KO, indicating that consumer perception requires continued monitoring.

What to watch

• Whether North American operations can gradually accelerate in 2H, particularly PFNA and PBNA volume trends.
• Whether management's affordability strategy, optimized by channel and customer, can improve purchase frequency.
• Whether FY26 EPS growth ultimately lands at the low end of the 4%-6% guidance range or performs better.
• Whether international operations can sustain high-single-digit organic growth and continue increasing their profit contribution.
• Whether productivity savings, automation, digitization, and simplification initiatives can offset cost inflation.
• The contribution from innovations and acquired assets such as Gatorade Lower Sugar, Pepsi Prebiotic, Poppi, Alani Nu, and Siete Foods after they enter the organic growth base.
• Whether PEP's valuation discount relative to KO, PG, and beverage peers narrows.
• Progress on FCF conversion, dividend growth, buybacks, and M&A capital allocation.