Uncovering the True Financial Impact of GLP-1 on Pepsi: A Fundamental Analysis

The rising popularity of GLP-1 appetite-suppressant drugs is reshaping consumer eating habits, presenting a tangible financial concern for PepsiCo (PEP) investors. These medications are curbing demand for snacks and sugary drinks, like those in PepsiCo’s portfolio. Wall Street is closely monitoring how this trend influences Pepsi’s revenue and profit margins. Recent reports already demonstrate the significant impact. For instance, Morgan Stanley projects that up to 9% of eligible Americans could be using GLP-1 drugs by 2030, potentially transforming the $100 billion market. As consumers on these drugs reduce their purchases of soda and snacks, PepsiCo faces the challenge of adapting its product lines. Forecasts for Q2 2025 predict a 1% revenue decline, marking the fourth consecutive quarter of sales contraction—a clear indication of persistent top-line pressure.

GLP-1's growing adoption is undeniably affecting PepsiCo's core snack and beverage sectors.

The New Snack Reality

The Frito-Lay division, a major contributor to Pepsi’s profitability, reported a 1% organic revenue decline and a 3% drop in volume in Q1 2025—the worst performance since the pandemic. Although PepsiCo has implemented price increases of up to 10% in some categories since 2022, these measures have not fully compensated for the volume losses. The North America Beverages division also experienced stagnant to declining organic revenue, with soda volume decreasing as consumers shift away from sugary options like Pepsi and Mountain Dew. Analysts expect GLP-1 usage to reach 3-4% of U.S. adults by the end of 2025, further eroding the market share of snacks and sodas. Wall Street’s response includes a steady reduction in profit estimates. Over the past year, the Zacks Consensus has slashed FY25 EPS forecasts by 13.5%. Concurrently, Refinitiv noted a 0.9% decline in Q2 figures within just 90 days. Competitors, such as Coca-Cola, are also grappling with sequential declines in North American beverage demand, confirming the widespread industry impact. Despite the volume setbacks, PepsiCo is refraining from significant discounting in an attempt to safeguard its margins, although this strategy risks further market share erosion. PepsiCo's stock has underperformed compared to the S&P 500 and sector peers by about 8% year-to-date, largely driven by cautious investor sentiment following profit guidance reductions.

Pullback or Overreaction? Valuation and Competitive Context

Although Street price targets suggest modest upside, as reflected in a median target of $146, few analysts issue “sell” ratings, indicating a sense of caution rather than outright bearishness. The company’s trailing P/E ratio has dropped below 20x, about three points lower than last year, highlighting how GLP-1 and general health-related challenges are factored into current valuations. PepsiCo faces competitive pressures not only from direct rivals like Coca-Cola and Keurig Dr Pepper but also from private label brands seizing consumer interest in healthier products. While Coca-Cola's international growth provides some cushioning, PepsiCo lacks this advantage to the same extent, placing it at a relative disadvantage. Analysts from RBC and Koyfin suggest that Pepsi has a prolonged path to recovery in its snack segment, which could maintain valuation pressures. Nonetheless, some buy-side analysts acknowledge that PepsiCo's brand strength, cost management, and pricing capabilities offer resilience, though significant top-line growth seems elusive in the near term.

PepsiCo is actively working to counterbalance current challenges through rigorous cost-control measures aimed at maintaining margins amid volume declines and heightened supply chain costs.

Upside Triggers and Headwinds

The company is also focusing on innovation, accelerating the launch of low-calorie beverages, high-protein snacks, and smaller portion packs. However, the ongoing GLP-1 trend suggests a long-term consumer shift toward healthier choices. PepsiCo's broad global presence helps mitigate the impact of softer demand in the U.S., although it doesn’t entirely offset North American weaknesses. Meanwhile, macroeconomic pressures, including tariffs and inflation, continue to affect input costs and profit forecasts. The successful introduction of products like Gatorade Zero showcases PepsiCo's ability to adapt, but scaling these innovations carries execution risks. Institutional investors remain committed to PepsiCo, attracted by its defensive nature and dividend yield, despite the current growth challenges. Potential risks to PepsiCo include an accelerated adoption of GLP-1 drugs, which could exacerbate declines in snack and beverage volumes before the company can effectively innovate. Global profit remains vulnerable to tariff disputes and currency fluctuations. Additionally, aggressive pricing strategies by competitors could force PepsiCo to reduce prices, straining margins. Resistance to further price increases might also imperil earnings. Regulatory changes concerning sugar and processed foods could further threaten revenue, while missteps in launching healthier products could derail recovery efforts.

What Could Go Wrong? Key Risks for Investors

Should PepsiCo issue another significant guidance cut, institutional investor sentiment might quickly sour. The risks posed by GLP-1 drugs are significant, impacting PepsiCo’s volumes. Cost management and product innovation serve as critical defenses against these challenges. While the stock isn’t undervalued, it doesn’t reflect a crisis scenario either. With a neutral rating, investors should focus on PepsiCo's execution and competitive strategy. The current 7% implied upside and dominant "hold" Street consensus suggest PEP remains a story of watchful waiting. Monitoring volumes, new product success, and North America snack trends will be key to spotting early signs of recovery. Maintaining strict cost discipline is essential, as failure in this area could drive the stock lower. PepsiCo’s dividend yield provides a cushion, but isn’t enough to overlook potential downsides. The upcoming quarters are crucial for assessing management’s adaptability..