PepsiCo, the global beverage and snacks giant, would release its earnings this week. What’s the forecast for the shares and what’re analysts expecting from the company’s fiscal third-quarter 2021 earnings?
This week looks pretty light on the earnings calendar. Next week, we’ll head into the third-quarter earnings season and there would be a flurry of earnings releases. Talking of PepsiCo, the shares have been trading flat this year and are up only about 5% so far. Meanwhile, the shares are outperforming rival Coca-Cola in the year.
PepsiCo earnings estimates
Analysts polled by TIKR expect PepsiCo’s revenues to rise 7.2% to $19.4 billion in the fiscal third quarter. The company’s revenues had increased 20.5% in the previous quarter. However, in the previous quarter, the sales growth from coming from weaker comps due to the COVID-19 restrictions in the corresponding period last year. Meanwhile, PepsiCo was less impacted by the lockdowns than rival Coca-Cola due to the high share of snacks revenue in its sales mix. While sales of beverages, especially those consumed at outdoor locations like cinemas tumbled, consumers stocked up on snacks amid the pandemic.
PepsiCo is expected to post an adjusted EPS of $1.73 which is 4.4% higher than the corresponding period last year. Notably, the EPS growth rate is expected to be below the sales growth rate. We can put the blame on cost inflation. Almost all the US companies are battling with higher input costs and logistics issues. There is a shortage of plastic and packaging materials which is leading to a spike in prices. Also, labour costs especially for logistics has gone up amid the shortage of drivers.
What to expect from PepsiCo’s earnings?
PepsiCo’s fiscal third-quarter earnings would provide an insight into how much of the input cost pressure has the company been able to pass on to consumers. During the previous earnings call, the company had talked about inflationary pressures. Hugh Johnston, the company’s CFO said that its forward buying program would somewhat offset the increase in raw material prices. However, he also talked about more cost pressures in the back half of the fiscal year and said that the company would revise the pricing after the Labor Day.
Meanwhile, during the previous earnings call, PepsiCo had upwardly revised its guidance for the fiscal year. It would be interesting to see if the company maintains or revises the guidance during the upcoming release. A lot of US companies including Nike have had to lower their guidance amid the crippling supply-side problems. To be sure, PepsiCo is not as adversely affected as Nike but the company might also be feeling the pain from logistics issues in the US.
According to the forecast estimates compiled by CNN Business, PepsiCo has a median price target of $167, which is a premium of 10.7% over current prices. Its highest price target of $185 is a premium of almost 23% over current prices, while its lowest price target of $140 is a 7% discount to the current share price.
Of the 23 analysts covering PepsiCo, 12 have rated the shares as a buy or higher, while the 10 analysts have a hold or equivalent rating on the shares. One analyst has a sell rating on the beverage company.
Recent analyst action
Last month, Deutsche maintained its hold rating on the shares while raising the target price from $154 to $158. Guggenheim also increased the target price by $4 to $174 while maintaining its buy rating. Notably, in July, when PepsiCo had reported stellar earnings, Credit Suisse had downgraded the share citing concerns over valuation.
However, UBS has a differing view of the company’s valuation and in April, it had upgraded the shares to a buy. “We believe PEP is only at the midpoint of an investment cycle that will yield a sustainable improvement to top and bottom line growth,” said UBS analysts in their note.
“We consider PEP’s valuation … to offer favorable entry point given PEP’s positioning as a beneficiary of continued at-home consumption momentum and on-premise reopening. PEP is a story of consistency and proven execution with category and geographical diversification,” added UBS while raising the target price to $165.
PepsiCo shares currently trade at an NTM (next-12 months) PE of 23.5x. The multiples have averaged 22.9x, 22x, and 20.4x over the last three years, five years, and ten years respectively. Now, the multiples might appear somewhat higher than the historical average. However, the valuation premium should be seen in context. Firstly, the broader market valuations are running way above their historical average. Secondly, PepsiCo is working to structurally improve the profitability which would pay off in the long run. Overall, the current valuations don’t seem high.
PepsiCo technical analysis
PepsiCo shares are not looking too nice on the charts. The shares fell below the 50-day SMA (simple moving average) last month and have been making lower highs over the last month. The shares are also below the 100-day SMA. However, the shares trade above the 200-day SMA. The MACD (moving average convergence divergence) also gives a sell signal. However, the 14-day RSI (relative strength index) is 37, which is a neutral indicator.
Meanwhile, if you are a defensive investor looking for shares with stable dividends, PepsiCo might interest you. The shares have a dividend yield of over 2.8% which is twice of the S&P 500’s dividend yield. Incidentally, the S&P 500’s dividend yield is near record lows, so are the rates on CDs. For investors looking at a steady regular income, PepsiCo might be a good option.
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PepsiCo, the global beverage and snacks giant, would release its earnings this week. What’s the forecast for the shares and what’re analysts expecting from the...