PepsiCo Inc. (PEP) is a well-managed company with a valuable brand portfolio; the company continues to generate solid growth amid weak demand for many consumer staples, explains John Staszak, an analyst with Argus Research.

PepsiCo, founded in 1898, produces and sells food, snacks, and beverages around the world. The company’s brands include Lay’s, Ruffles, Doritos, Tostitos, Cheetos, Quaker Oatmeal, and Rice-A-Roni. Its beverage portfolio includes Pepsi, Mountain Dew, Gatorade, 7UP, Tropicana, and various bottled water products.

On average, 11 of the 15 top-selling products in convenience stores come from PepsiCo, and Lay’s is the world’s best-selling snack food brand, having expanded sales from $100 million fifty years ago to $30 billion today.

Despite investments in advertising and marketing programs and foreign currency headwinds, PepsiCo reported solid 2Q19 operating earnings, topping the consensus estimate.

We expect cost cutting to continue to benefit earnings, and look for PepsiCo to achieve its goal of $1 billion in annual cost savings and productivity gains in 2019. Initiatives include optimizing the company’s global manufacturing footprint and reengineering its distribution network.

At 22.9-times our 2019 EPS estimate, the shares are trading above their five-year historical average of 22.0 but below the peer average. We think investors will continue to favor the shares given the company’s ability to develop innovative products and execute its growth initiatives.

Since declining to $100 in June 2018, Pepsi shares have advanced 35% including dividends. Nevertheless, we believe that investors have yet to fully recognize management’s efforts to improve sales of carbonated beverages in North America and strengthen overall pricing and product mix.

We expect pricing and mix to continue to improve as the company launches more premium products.

Our revised target price of $154, combined with the dividend, implies a total potential return of 20% from current levels.

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