Pepsi's Future in Peril: GLP-1s Threaten to Crush the Giant

Ah, PepsiCo (PEP). The quintessential blue-chip stock that for decades has been viewed as a fortress in the stormy seas of the stock market. It's the kind of company that conjures images of Warren Buffett-esque predictability and dividends as reliable as the sunrise. But dear reader, I must confess: the PepsiCo of yore may be drifting into treacherous waters, and many investors are blind to the looming iceberg—that iceberg being GLP-1 obesity drugs. Once basking in the glow of a near-premium valuation at 24x forward earnings in 2022 and 2023, PEP has since lagged the S&P 500 by about 12% since the GLP-1 storyline began making waves in late 2024. Wall Street's complacency, fed by the notion that consumer staples are a "safe haven," left many ignoring this disruptive new force. It's akin to ignoring a category 5 hurricane because you've fortified your beach house with plywood. Trust me, the wind will find its way in. I have my own history with PepsiCo, having held the stock through much of the last cycle. It was a comfortable 4% of my portfolio at its peak. However, the more I scrutinized the data, the clearer the bear case became. I exited entirely after Q1 2025 results, a decision guided by a growing awareness of the headwinds PEP faces in this new landscape. Investors have been lulled into a false sense of security, and it's time to wake up.

In 2025, PepsiCo finds itself in a macroeconomic quagmire, with slowing category growth in snacks and beverages paired with margin compression due to inflation and foreign exchange woes.

Section 2

For the first time since the onset of COVID-19, PEP reported a net revenue decline of 1.8% year-over-year in Q1 2025. This is a sobering deviation from the robust 8-10% growth rates seen during the pandemic and its immediate aftermath. CEO Ramon Laguarta's recent comments echo the market's malaise: "Consumer conditions in many markets remain subdued and...uncertain." Indeed, the consumer landscape is shifting. The winds of change, driven by the GLP-1 phenomenon, are causing a demand deceleration that PEP can no longer ignore. With approximately 12 million Americans on GLP-1 prescriptions—a number expected to double by the end of 2025—these weight-loss drugs are reshaping consumer priorities in real-time. As funds rotate out of 'defensive' names, cutting $7 billion in consumer staple exposure in favor of tech and cyclicals, PepsiCo's once-solid footing seems increasingly precarious. Price/mix strategies that once offset declines are now faltering, with flat-to-down volumes in key regions. It’s a new reality where PEP must confront the seismic shifts in consumer health priorities head-on. Let's delve deeper into the heart of the matter: GLP-1 drugs are not just a fleeting trend; they represent a paradigm shift that could fundamentally undermine PepsiCo's core offerings. Nielsen retail scanner data paints a grim picture with salty snacks volume down 3.6% year-over-year and sweetened beverages down 4.2% in Q1 2025. These figures are more than just numbers; they are the harbingers of a consumptive evolution. The early adopters of GLP-1s are typically higher-income consumers, historically PepsiCo's golden geese. But even those not on the drugs are modifying their behaviors, driven by a societal wave towards healthier living. The "Fear of Missing Out" (FOMO) effect is palpable—non-GLP-1 users are buying into the health-conscious trend, further dragging PEP's volumes. Channel checks with major grocers reveal a "notable drop" in impulse snack and soda purchases since late 2024. The stickiness of these behavior changes, even as weight-loss plateaus, has been underestimated by many investors.

Section 3

This is no mere blip; it's a new chapter where PepsiCo must rewrite its playbook or risk obsolescence.

The financial portrait of PepsiCo is not what it used to be. With organic growth forecasts now in the low single digits and EPS flattening, the company's rosy days seem distant. GAAP EPS dropped 10% in Q1 2025 compared to the previous year, with core EPS not far behind at a 4% decline. Yet, in a move that raises eyebrows, PepsiCo increased its dividend by 5% for 2025, despite the profit base stagnating. This smacks of a company clinging to its "Dividend Aristocrat" status while the foundations shake beneath it. With P/E ratios hovering around a still-rich ~21x, compared to a historical median of 19x, and operating margins squeezed by inflation, PepsiCo's valuation is out of sync with its current threat profile. The market's patience is waning, and unless PEP can regain its pricing power and adapt to new consumer behaviors, the valuation will inevitably correct..