Q3 Preview: Pepsico (PEP) May Have Soft Quarter, Buy Outlook is Promising
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Price: $169.48 +1.18%
Rating Summary:
17 Buy, 14 Hold, 0 Sell
Rating Trend: Up
Today's Overall Ratings:
Up: 11 | Down: 13 | New: 18
Rating Summary:
17 Buy, 14 Hold, 0 Sell
Rating Trend: Up
Today's Overall Ratings:
Up: 11 | Down: 13 | New: 18
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Pepsico, Inc. (NYSE: PEP) shares are trading lower Tuesday ahead of it's third-quarter earnings report.
Expected out before the market opens Wednesday, Pepsi should report earnings of $1.30 per share on revenue of $17.25 billion. If the company can achieve such numbers, earnings would be a 1.6 percent dip from last quarter, and a 0.9 percent slide from the same period last year.
Pepsi shares fell 11.4 percent in the quarter and are 1.5 percent lower since. The stock is down 4.5 percent over 2011. Pepsi has traded in a range of $58.50 to $71.89 over the last 52-week period.
Shares of Pepsi are trading at a forward P/E of 12.9x expected fiscal 2012 earnings, compared with 15.8x at Coca-Cola (NYSE: KO), and 13.7x for Kraft (NYSE: KFT).
Data from Bloomberg has 11 analysts with a Buy, seven at Hold, and one at Sell. The price target average is $72, with a low of $65 and high of $85.
Analyst Comments
Expected out before the market opens Wednesday, Pepsi should report earnings of $1.30 per share on revenue of $17.25 billion. If the company can achieve such numbers, earnings would be a 1.6 percent dip from last quarter, and a 0.9 percent slide from the same period last year.
Pepsi shares fell 11.4 percent in the quarter and are 1.5 percent lower since. The stock is down 4.5 percent over 2011. Pepsi has traded in a range of $58.50 to $71.89 over the last 52-week period.
Shares of Pepsi are trading at a forward P/E of 12.9x expected fiscal 2012 earnings, compared with 15.8x at Coca-Cola (NYSE: KO), and 13.7x for Kraft (NYSE: KFT).
Data from Bloomberg has 11 analysts with a Buy, seven at Hold, and one at Sell. The price target average is $72, with a low of $65 and high of $85.
Analyst Comments
- Goldman Sachs is modeling for EPS of $1.28, saying it expects to "see continued volume pressure in the quarter as the commodity costs are passed on through pricing."
Goldman sees North American Frito-Lay sales sliding 1.5 percent against a 3.5 percent pricing gain, seeing a slowdown in measured channel sales. "We estimate 50 bp sales declines at Quaker Foods on 4% volume declines, partially offset by a 3% pricing gain in the quarter. Quaker’s share trends continued to be weak with sales down MSD in FDMx."
PAB is unlikely to show any meaningful turnaround, stemming from continued softness in CSDs "and the weak macro backdrop weighing on its non-carb growth. PAB faces a tough yoy volume compare this quarter with the favorable weather, WMT promos, and Gatorade G-series rollout in 3Q2010. We forecast 2.3% sales growth and a 4.0% EBIT decline in 3Q2011, mostly driven by weak volume performance and still-elevated marketing spend."
- JPMorgan sees earnings of $1.30. JPMorgan also believes it will be another tough quarter for PAB. "We expect fx to be an LSD tailwind in the quarter and for Q4 we expect fx to turn negative and we believe the company will reinvest the majority of the potential upside from the 53rd week. We have also taken our volume estimates down as we expect higher pricing to weigh on volume trends. Our Q3 volume estimate is -3% for PAB and flat for FLNA."
Looking ahead, JPMorgan does see the stock as cheap now, and expects improvement in 2012, but also believes next year will be a "more difficult than expected year for PepsiCo."
- Wells Fargo is slightly bullish on Pepsi, seeking earnings of $1.32 per share. Wells notes even as Pepsi has implemented 3 to 5 percent price increases opportunistically, Nielsen data shows softer volume in places with a corresponding increases in prices, whether beverages or snacks. Wells also sees limited impact to third-quarter earnings from foreign exchange.
Looking ahead, Wells commented, "we think PEP shares may be range bound for several quarters, until the beverage business demonstrates material improvement. Furthermore, we think the historical valuation relationship with KO is less relevant, given the diverging performance and strategies of the two companies, and would not recommend an investment strategy based on relative valuation."
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