PepsiCo

PepsiCo Q3 Revenue Grows Over 5% to $18.09 Billion, Forecasts Solid 2020 Earnings; Target Price $155

PepsiCo Inc, an American multinational food, snack and beverage corporation, reported that its overall net revenue rose more than 5% to $18.09 billion in the third quarter and forecasts 2020 core earnings of $5.50 per share, sending its shares up about 1% on Thursday.

The company which holds approximately a 32% share of the U.S. soft drink industry said its attributable net profit rose 9.1% to $2.29 billion. Excluding items, the company earned $1.66 per share, beating expectations of $1.49 per share, Reuters reported.

PepsiCo forecasts full-year organic revenue growth of about 4%, $10 billion in cash from operating activities and free cash flow of about $6 billion.

“Driven by strength in PepsiCo’s (PEP) snacks portfolio, elevated at-home consumption, and moderating headwinds in PEP’s bevs business, the co. remains well-positioned to navigate the challenges of the current env’t. While we expect shares to trade higher on the print, valuation looks generally full at ~24x P/E,” said Kevin Grundy, equity analyst at Jefferies.

At the time of writing, PepsiCo’s shares traded 0.85% higher at $139.78 on Thursday; the stock is also up over 2% so far this year.

PepsiCo stock forecast

Eleven analysts forecast the average price in 12 months at $144.64 with a high forecast of $155.00 and a low forecast of $130.00. The average price target represents a 3.47% increase from the last price of $139.79. From those 11, six analysts rated ‘Buy’, five analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $155 with a high of $180 under a bull scenario and $104 under the worst-case scenario. PepsiCo had its price objective upped by research analysts at to $139 from $137.

Several other equity analysts have also updated their stock outlook. JP Morgan lowered their stock price forecast to $149 from $154; UBS raised the price target to $140 from $136; Deutsche bank upped their price objective to $140 from $139 and Guggenheim raised their target price to $151 from $148.

Analyst comment

“PepsiCo (PEP) is our top beverage pick. We forecast Pepsi will post superior topline growth relative to peers driven by exposure to the higher growth/higher margin snacks category (2/3 of PEP’s profit). Snacks is a higher growth category given: (1) shift to snacking vs. sit-down meals; (2) less pressure from health/wellness vs. beverages, and (3) PEP’s leading share in snacks vs. fragmented competition, driving share gains, and higher margins/ROIC,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We also see more structural Pepsi market share benefits post-COVID, as PEP uses its DSD distribution advantage, to gain shelf space and share in snacks, and in beverages, where PEP is advantaged vs competition with a much lower mix in away-from-home,” he added.

Upside and Downside Risks

Upside: Higher FLNA snacks topline growth, improving North America beverages business on higher investment spend and on-premise recovery, better GM expansion on favourable commodities/better pricing, and higher cost savings from restructuring, highlighted by Morgan Stanley.

Downside: Lower return from PEP’s reinvestment, macro volatility, commodity and FX volatility, greater COVID impacts, worse market share trends in beverages, soda taxes.

Check out FX Empire’s earnings calendar