Shares of beverage and snacking giant PepsiCo (PEP -0.62%) popped on Monday after an analyst upgraded his outlook and raised his price target. As of 1:15 p.m. ET, Pepsi stock was up 4%, which is a big move for this usually sleepy stock.
Pepsi's most exciting opportunity
Morgan Stanley analyst Dara Mohsenian is one of the highest-rated and listened-to analysts out there and he's turning heads with his commentary on Pepsi stock today. Mohsenian reportedly is looking to Pepsi's growth in international markets and the valuation of its stock as reasons for bullishness. Accordingly, the analyst raised the price target for Pepsi stock to $190 per share, according to The Fly.
Mohsenian isn't alone in his bullishness for Pepsi in international markets; CEO Roman Laguarta shares his optimism. In the earnings call for the fourth quarter of 2023, Laguarta said, "The international opportunity continues to be probably the most remarkable and exciting opportunity that we have as a company."
Considering Pepsi is a business valued at over $230 billion, that's a big deal and why the market is excited today.
Is Pepsi stock undervalued?
Regarding Pepsi's valuation, it looks pretty average to me, which differs from Mohsenian's belief that the valuation is cheap. Its current price-to-earnings (P/E) ratio is 26, which is right at its 10-year average.
PEP PE Ratio data by YCharts
That said, the reason that Laguarta is excited about Pepsi's growth in international markets is because it's now almost a $40 billion business outside of the U.S., gaining enough scale to have better profit margins. Therefore, as business grows in those markets, profits should grow at a faster pace.
In light of this, it's possible that Pepsi's profits could go up faster than what some investors expect in coming years. If that happens, then perhaps Pepsi is undervalued on a forward basis even if its valuation looks average on a trailing basis. In this case, Mohsenian's point is well taken and his price target of $190 would be easily attainable.
