Title: Friday POW! — PepsiCo (PEP): the Pepsi Regeneration (Elliott activist + cost cuts)
Show: Haymaker — Friday POW! (Pick of the Week)
Author: David Hay — The Haymaker Team (research/write-up lead: Daniel Bustamante)
Date: 2026-04-10
URL: https://haymaker.substack.com/p/friday-pow-972
Length: written post (PAID), no timestamps
Note: Full article body, lightly cleaned (key-points bullets and section labels kept; image captions noted inline). The bottom "Buy List" renders as an image and is not text-captured.

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Hello, Subscribers:

The research and write-up for this week's Pick are primarily the work of our new contributor, the highly knowledgeable and successful money manager Daniel Bustamante. Our paid subscribers can expect to see a lot more in the way of actionable material from Daniel over the coming months.

Key Points
- New highs into 2027 and a potential target of +$210, representing +33% upside relative to current levels.
- Consumer staple name – we like these in times of market volatility and during mid-term election years
- Not a sexy business, but brimming with potential via revaluation, margin expansion, and cost-cutting measures
- Currently under activist leadership, despite not having recently struggled in any material sense; changes underway to fortify an already sturdy business.
- Long-term, the company is trending strongly and presents a secure spot to stowaway some cash while the larger markets continue trading on volatility-themed headlines

For those of you who haven't already guessed, our Pick of the Week is none other than… [PepsiCo]

The Pepsi Regeneration

Core Thesis: Why We Like This Name

As of this writing, PepsiCo is continuing with a cost-cutting round to strengthen its margins. Added to that is a share-buyback project amounting to $10 billion, this just as free cash flow (FCF) and revenues are both on the rise. Furthermore, future divestitures – high potential for this – are certain to boost the company valuation.

How does all that sound?

When looking at a business, especially a legacy brand, we like to see management pulling on the levers that help us as capital partners — which is exactly what you are as an investor.

In December of 2025, just a few months back, PepsiCo reached a collaborative agreement with activist investor, and hedge-fund powerhouse, Elliott Investment Management. The deal was predicated on enhancing shareholder value through:
- Aggressively reducing operating costs and improving operational excellence.
- Closing three manufacturing plants and shutting several production lines (already done in 2025).
- Reducing SKUs (stock-keeping units/products) by nearly 20% in the U.S. by early 2026 to simplify the portfolio, cut complexity, and redirect savings toward marketing, innovation, and affordability.
- Advancing automation, digitalization, and supply-chain optimizations.

We like this not because they took a position, but because of what they're pushing for. These changes are intended to improve gross margins and FCF which have already begun to turn the corner and will act as additional "fuel" in the name.

They also already announced a new $10B share buyback (one more check in the "Yes" column)

[Image: Pepsi's earnings call]

That $10 billion repurchase is about 5% of PEP's market value. When combined with its dividend, this amounts to almost a 9% cash return to shareholders (though the buyback is an indirect distribution). Also highlighted in the latest earnings call was record productivity savings, which contributed to strong margin expansion (e.g., core operating profit growth of 18% and core earnings per share up 16%). These savings, as emphasized in the call, helped offset costs and fund commercial initiatives.

For 2026 guidance (reaffirmed in February):
- Aiming for a record year of productivity savings – building on 2025's groundwork.
- Expect core operating margin expansion (at least 100 bps cumulatively over the next few years), driven by net revenue growth, productivity, and cost controls offsetting inflation and investments.
- Productivity savings will specifically help fund affordability moves (like targeted price cuts on snacks such as Lay's, Doritos, Cheetos, and Tostitos starting in 2026) without derailing profitability

The market rewarded these actions, as well as the Elliott agreement, in January and then again, to a lesser degree, in reaction to February's earnings report.

[Image: Price Chart of PEP Since 11/30/2025 — Bloomberg]

Cost-cutting measures like the ones they've laid out in their recent earnings expansion are just what we like to see.

FCF and overall balance sheet are also strong – that includes rising revenues as of the most recent earnings. If they can continue to work on the FCF conversion ratio they've laid out for 2027, that only then becomes stronger. Earnings cover debt service by a husky 11 to 1.

Clearly, we're not buying a failing business, but one with strong cash flow and rising revenues, as in nearly $30B worth!

Divestitures & Potential Spin-offs

What about adding more cash to the balance sheet with potential divestitures and spin-offs as noted by Elliott?

Elliott Investment Management flagged the potential divestitures (including Quaker Oats brands like Life, Cap'n Crunch, hot cereals/snack bars, as well as related assets from the 2001 Quaker acquisition, such as Rice-A-Roni, Pearl Milling, and Ben's Original) in their public activist campaign materials released on September 2, 2025. (Just don't push them to sell their Cheetos product line!) Unfortunately, their presentation about what brands they considered to divest and discussion about spinning off the bottling was removed.

Does This Help the Share Price?
- Cash-generation for buybacks/dividends
- Margin expansion - Elliott argued this would restore PFNA's profit margins by aligning costs with volumes and creating a "leaner" structure, potentially expanding overall EBITDA margins by 200-300 basis points toward peer levels.
- Accelerated growth - By offloading under-performers, PepsiCo could reallocate resources to innovation in high-growth areas, such as healthier snacks or core sodas to close the performance gap with its chief rival, Coca-Cola. (KO, by the way, trades at almost 24x earnings; in the past, PEP often traded at parity with Coke's multiple.) Elliott highlighted that a simplified portfolio would enable faster organic revenue growth (targeting 4-6% annually vs. recent stagnation), as resources aren't spread thinly across stagnant categories.

Additional Catalysts

Increasing Dividends: The dividend is currently at 3.5% — even if you're not a dividend investor, this is certainly better than a stick-in-the-eye, and you could get paid while waiting for PEP's share price to show some pep.
Verdict: Win

Consumer Staple: Everybody knows Pepsi. Their brands are recognizable and their product line is vast. They also own 11% of Celsius, which has been a big name in the energy drink space.
Verdict: Win

Technical Analysis

We expected this to pull back given the market at present (as of now, the NASDAQ and S&P 500 are lower on Iran War worries). But this is a name that looks great on a trend-following and price-action basis.

Another encouraging technical aspect is that PEP has broken its downtrend since the 2023 peak. Per the yellow line below, it's also been holding materially, and durably, above its 200-day moving average.

[Image: Five-Year Price Chart of PEP (with downtrend line displayed) — Bloomberg]

Following the late-2025 rally, this could be a good opportunity to get back on the trend as PepsiCo's stock goes after the prior swing highs. A pullback like this is ideal for trend-trading (i.e. buying on a corrective pullback). Look for positive updates in the company's forthcoming earnings report.

Valuation

[Image: 10-Year Chart of Price-to-Sales and P/E Ratios for PEP — Bloomberg]

As you can see from the above chart, PEP has rarely been as inexpensive as it is now on both a Price/Sales and P/E basis. With a non-cyclical stock, like PEP, we believe the more important metric is P/E. Its lofty dividend is more than triple the overall S&P 500's yield of 1.15%.

Conclusion

As far as consumer staples go, this is one of the "big staples" since their product lines serve consumers globally, and have for decades. What we're getting here is the chance to be a part of a positive activist campaign, cost-cutting and divestitures... oh, and we get a 3.5% dividend while we wait! And all of that at a very modest valuation for this ultra-high-quality name. To justify that characterization, PEP carries the coveted 100 earnings predictability rating by Value Line.

In a time of market volatility, uncertainty, and impending mid-terms, which is when staples tend to outperform, you might not find a more suitable harbor in which to "hide out" as other high-beta equities and tech names whipsaw on each week's most bombastic headlines… particularly when the POTUS is continually talking about his next bombing campaign. If he's not careful, or very lucky, he may also bomb in the midterm elections, in which case holding defensive names like PEP will be even more important.

The Haymaker Team