PepsiCo (PEP -0.62%) stock was a big winner for investors in 2022. The snacks and beverages giant managed positive returns even as the S&P 500 dropped 19%.
That outperformance made sense given Pepsi's strong and accelerating sales growth and its ability to boost prices without sacrificing much in the way of sales volumes.
But what about 2023 and beyond? Let's take a look at whether Pepsi is likely to extend its positive momentum into the coming years while generating market-thumping returns for its shareholders.
Diversity pays
PepsiCo will likely be posting record sales in 2028. The company is on track to grow organic sales by 12% in 2022, marking a solid acceleration over the prior year's blazing 10% increase. Part of that boost involves temporary lifts like rising prices and a generally positive selling environment for packaged foods and beverages. Rival Coca-Cola (KO) recently raised its outlook after sales jumped 16%.
PepsiCo's success is being powered by fundamental strength, though. Sales volumes were up 3% in the last quarter even as prices jumped. The company is winning market share across several huge niches, including energy drinks, snacks, and breakfast foods. Those wins suggest that the business will be much larger in 2028 than the current annual sales level of about $85 billion.
Cash and profits
Investors are also likely to see strong earnings and cash returns over the next few years. Pepsi generated over $10 billion in operating cash in each of the last two full years and is likely to approach the double digits again in 2022.
PEP Cash from Operations (TTM) data by YCharts
That river of cash flow means the company can invest aggressively in its growth projects like the push into more energy drinks, sparkling water, and premium snack foods. It also means more direct returns for shareholders.
Pepsi will deliver about $8 billion to investors in 2022, mainly through its dividend payment. And that dividend will almost surely 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 prospects. Unlike most stocks right now, Pepsi's price-to-sales ratio isn't sitting near a multiyear low. At roughly 3 times sales, you're paying far more for the stock today than you might have paid at most points over the last decade.
Still, Pepsi is growing faster than it has in years, and its performance through the pandemic and the immediate aftermath demonstrates how the company can generate strong sales and earnings through a wide range of selling conditions.
That flexibility is valuable, especially as we enter what could be a recession at some point over the next few quarters. PepsiCo has navigated through dozens of consumer spending pullbacks in the past without being forced to slash its dividend or dramatically restructure the business. Investors have good reasons to expect similar success from this consumer staples giant over the next five years.
