Like many companies in the packaged foods industry, PepsiCo (PEP +0.49%) has struggled. A focus on healthy beverages and foods forced it to pivot to meet consumer demands. Still, while investors have seen signs of growth recovery, its stock has continued to struggle.
The company's stock struggles are arguably a surprising reason that PepsiCo stock has underperformed its archrival, Coca-Cola, which is a more expensive stock offering a lower dividend yield. However, PepsiCo stock could be in for a long-overdue rally during the second half of 2026. Here's why.
Image source: The Motley Fool.
PepsiCo's improving performance
When a stock has struggled for years, it often takes time for investors to notice improvements. That could be the case for PepsiCo stock, which has fallen over the last five years. It is also down by around 18% from its 52-week high. Price cuts on some snack items hurt margins, and persistent inflation in the U.S. has weighed on consumers.
Nonetheless, PepsiCo changed its product mix to better serve health-conscious consumers. More of its beverages emphasize zero sugar and better hydration. It also offers more snack foods with lower levels of saturated fat, sodium, and sugar, while adding more natural ingredients.
NASDAQ: PEP
Key Data Points
Despite those worries, revenue of nearly $44 billion in the first half of fiscal 2026 (ended June 13) was up more than 7% from the year-ago period. That compares well to the first half of 2025, when revenue had fallen by less than 1% from the previous year.
Furthermore, net income in the first half of fiscal 2026 was $5.3 billion, well over the $3.1 billion in the same period one year ago, when a nearly $1.9 billion impairment of intangible assets weighed on earnings.
This shows revenue and earnings growth have returned at a time when investors focused more on the negative. Still, that has created an opportunity for investors to buy PepsiCo stock at just 18 times earnings. That is lower than Coca-Cola's 26 P/E ratio.
Additionally, PepsiCo stock pays a $5.92-per-share annual dividend, yielding around 4.1%. That far surpasses the 1% average of the S&P 500 and Coca-Cola's 2.4% dividend yield. Also, PepsiCo is a Dividend King by virtue of its 54-year streak of annual payout hikes. Since holding Dividend King status tends to boost investor confidence in the stock, the annual payout hikes are likely to continue.
Bet on a comeback
PepsiCo's product pivots have helped boost sales growth, and conditions are ripe for the stock to move higher.
Admittedly, timing a comeback is an uncertain prospect, and the recovery may not happen as quickly as hoped.
However, we know that PepsiCo has responded to consumer demands and reaped the benefit of improving revenue and profits as a result. Moreover, its P/E ratio is significantly lower than Coca-Cola's, and its growing, stable dividend offers returns far surpassing the market average.
Thus, even if investors don't see immediate price growth from PepsiCo stock, they can buy cheaply and earn a generous cash return while waiting on a recovery.
