David Hay — Friday POW!: PepsiCo (PEP) — the Pepsi Regeneration
A defensive "big staple" at a rarely-seen-cheap multiple, with an Elliott-driven cost-cutting / divestiture campaign as the catalyst — "a secure spot to stowaway some cash" through market volatility and a mid-term election year, ~33% upside to +$210.
One-line take: This week's POW! is PepsiCo (PEP) — a defensive consumer-staple "harbor" for a volatile, mid-term-election-year market, at a rarely-seen-cheap P/E and P/S. The catalyst is the Dec-2025 Elliott Investment Management activist agreement: aggressive cost cuts (3 plants closed, ~20% US SKU reduction), automation/supply-chain optimization, and potential divestitures (Quaker-era brands — Life, Cap'n Crunch, Rice-A-Roni, Pearl Milling, Ben's Original) that could lift margins 200–300bps and re-rate the multiple. Already announced a $10B buyback (~5% of cap → ~9% total cash return with the 3.5% dividend); record productivity savings drove +18% core operating profit / +16% core EPS. KO trades ~24× (PEP historically at parity); Value Line 100/100 earnings predictability. Technically broke its 2023 downtrend and holds above the 200-day MA; target +$210 (+33%) into 2027. A trend-trade entry on the corrective pullback.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| PEP | PepsiCo | QT · SA · STK · FA | Positive | Pick of the Week — PepsiCo, a defensive "big staple" at a rarely-cheap P/E & P/S, with an Elliott Investment Management activist campaign (Dec-2025) as the catalyst: aggressive cost cuts (3 plants closed, ~20% US SKU cut), automation, and potential Quaker-brand divestitures that could expand margins 200–300bps and re-rate the multiple. $10B buyback (~5% of cap) + 3.5% dividend ≈ ~9% cash return; record productivity savings drove +18% core op profit / +16% core EPS; ~$30B FCF, debt covered 11×, Value Line 100/100. Broke its 2023 downtrend, holds the 200-day MA; target +$210 (+33%) into 2027. Buy the corrective pullback — a staples "harbor" for a volatile, mid-term-election market. | read |
| KO | Coca-Cola | QT · SA · STK · FA | Neutral | Valuation benchmark — PEP's "chief rival"; KO trades at almost 24× earnings, and PEP "often traded at parity with Coke's multiple" historically, so the gap is the re-rating opportunity for PEP (not a call on KO itself). | read |
| CELH | Celsius Holdings | QT · SA · STK · FA | Neutral | Asset reference — PEP owns ~11% of Celsius, "a big name in the energy-drink space," cited as part of PEP's "consumer staple = win" verdict; not a standalone call on CELH. | read |
References only (not tickers): Elliott Investment Management (the activist driving the campaign); the Quaker-era divestiture-candidate brands (Life, Cap'n Crunch, Rice-A-Roni, Pearl Milling, Ben's Original); and PEP's snack brands (Lay's, Doritos, Cheetos, Tostitos). The bottom "Buy List" renders as an image and is not text-readable, so portfolio.json is unchanged.
2. Talking points
The pitch — a defensive harbor with activist fuel
- A "big staple" you can "stowaway some cash" in while high-beta tech whipsaws on headlines; staples tend to outperform in volatility and mid-term election years. Target +$210 (~33% upside) into 2027.
- This week's write-up is led by new Haymaker contributor Daniel Bustamante.
The Elliott campaign — what they're pushing for
- Dec-2025 collaborative agreement with Elliott Investment Management: aggressively cut operating costs, close 3 manufacturing plants + several production lines (done in 2025), reduce US SKUs ~20% by early 2026, and advance automation/digitalization/supply-chain optimization.
- "We like this not because they took a position, but because of what they're pushing for" — measures aimed squarely at gross margins and FCF, both already turning the corner.
Capital return — the $10B buyback + dividend
- A new $10B buyback ≈ 5% of market value; combined with the dividend ≈ ~9% total cash return to shareholders.
- Record productivity savings drove +18% core operating profit and +16% core EPS, funding affordability moves (targeted snack price cuts on Lay's/Doritos/Cheetos/Tostitos in 2026) without hurting profitability.
2026 guidance
- A record year of productivity savings; core operating margin expansion of at least 100bps cumulatively over the next few years; savings to fund affordability without derailing profit.
The balance sheet & cash flow
- Strong FCF and balance sheet with rising revenues (~$30B); earnings cover debt service ~11×. "Clearly, we're not buying a failing business." Continued progress on the 2027 FCF-conversion target only strengthens it.
Divestitures & spin-offs — the optionality
- Elliott flagged potential divestitures of Quaker-era brands (Life, Cap'n Crunch, hot cereals/snack bars, Rice-A-Roni, Pearl Milling, Ben's Original) in its Sept-2-2025 campaign materials, plus discussion of spinning off bottling (since removed from the deck). "Just don't push them to sell their Cheetos product line!"
- Offloading under-performers could restore PFNA (Pepsi Foods North America) margins, expand EBITDA margins 200–300bps toward peers, and accelerate organic growth toward 4–6% by freeing resources for innovation (healthier snacks, core sodas) to close the gap with Coke.
Additional catalysts — dividend & the Celsius stake
- 3.5% dividend (>3× the S&P's ~1.15% yield) — "you could get paid while waiting for PEP's share price to show some pep." Verdict: Win.
- Recognizable global brands, a vast product line, and an ~11% stake in Celsius in the energy-drink space. Verdict: Win.
Technicals & valuation
- Broke the downtrend in place since the 2023 peak and holds durably above its 200-day moving average; the corrective pullback (market down on Iran-War worries) is an ideal trend-trade entry as it goes after prior swing highs.
- Rarely been this cheap on both P/S and P/E; for a non-cyclical, P/E is the more important lens. KO trades ~24× (PEP historically at parity). Value Line gives PEP a coveted 100/100 earnings-predictability rating.
3. In plain English
PEP — PepsiCo Positive
PepsiCo makes Pepsi, Gatorade, Lay's, Doritos, Quaker and dozens of other everyday food and drink brands — the kind of "boring" staple people keep buying whether or not the economy is shaky. Haymaker's pitch is partly defensive: in a jittery, mid-term-election-year market, a recognizable staple paying a 3.5% dividend (triple the market's) is "a secure spot to stowaway some cash." But the real spark is activist investor Elliott Management, which struck a deal with PepsiCo in December to force the company to run leaner — cutting costs, closing plants, trimming about 20% of its U.S. products, and possibly selling off slow-growing brands (the old Quaker stable). Those moves should fatten profit margins and free up cash.
On top of that, the company just announced a $10 billion stock buyback (about 5% of the company), which together with the dividend hands shareholders roughly 9% of their money back each year. And the stock is unusually cheap for PepsiCo's quality — it has historically traded in line with Coca-Cola, which now fetches ~24× earnings, leaving room to catch up. The chart has broken its multi-year downtrend and sits above its 200-day average, so Haymaker suggests buying on a dip ("trend-trading") with a price target around $210, about 33% higher, into 2027. It's framed as a steady, get-paid-while-you-wait holding rather than a fast trade.
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.