Pepsi Gains a New Bull

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Pepsi delivered a better-than-expected earnings report last week.

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stock was higher Wednesday after an upgrade by


which argues the snack and beverage giant’s recent investments will ultimately deliver higher-than-expected sales and profit growth.

Shares of PepsiCo (ticker: PEP) were up 1.2% to $147.44 in morning trading. The stock is off 1.7% year to date but has gained nearly 10% in the past 12 months.

Analyst Sean King boosted his rating to Buy from Neutral and raised his price target to $165 from $145. He made the move on his belief that the company’s full-year sales and earnings per share for the next two years will climb well above consensus expectations.

King contends the Street isn’t fully appreciating that Pepsi’s current investment cycle, which is only in the middle innings, will “yield a sustainable improvement to top and bottom-line growth.” He’s projecting revenues will climb 5.7% through 2023 and while EPS will jump 10%.

Pepsi is seeing some of its key beverage brands stabilize, he notes, while renewing a focus on high-profit energy drinks, a combination that should lift margins some 300 basis points through 2024 for its North American unit. Also, the company’s investments on the snacking side position it well for top-line growth in desirable international markets.

Pepsi delivered a better-than-expected earnings report last week. King highlights the point that the company has exceeded profit expectations despite the challenges of Covid-19, and that costs associated with the pandemic should start to taper off. He raised his full-year 2021 and 2022 EPS estimates to $6.14 and $6.72, respectively, from $6.08 and $6.58 before. He also thinks that organic growth will climb 4.9% and 4.6% this year and next, up from his previous estimates of 4% and 3.6%.

Ultimately, while the stock’s valuation is near the upper end of its historical levels, King writes that relative valuation remains below its three-year average discount.

Write to Teresa Rivas at [email protected]

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