Bottles of assorted global soft drinks

Pepsico Surges to All-Time High After Earnings

Pepsico Inc. (PEP) is trading at an all-time high in Tuesday’s pre-market session after handily beating Q2 2021 top and bottom line estimates and raising fiscal year 2021 earnings-per-share (EPS) guidance. The snack and beverage giant posted a $1.72 per-share profit during the quarter, $0.19 better than expectations, while revenue rose a healthy 20.5% year-over-year to $19.22 billion, beating consensus by more than $1.25 billion.

Managing Food Inflation

The bullish results eased shareholder worries that food inflation will lower margins going forward. The company has done an excellent job so far raising prices and instituting cost saving programs to make up the shortfall, which has forced rivals that include General Mills Inc. (GIS) to post cautionary guidance.  Better yet, Pepsico now expects to “deliver 6 percent organic revenue growth (versus previous guidance of mid-single-digit growth)”.

BofA Securities analyst Bryan Spillane examined the food industry’s pricing challenges this week, noting the macro focus on “inflation as the market bifurcates food and beverage stocks into two camps a) those who are already realizing price increases to cover inflation and protect margins, seen as “the winners” and b) those who have pricing coming through later in 2021 and may experience gaps in earnings/margins over the next few quarters, i.e. “the underperformers”.

Wall Street and Technical Outlook

Wall Street consensus has eased to an ‘Overweight’ rating in the last three months, based upon 11 ‘Buy’, 1 ‘Overweight’, 10 ‘Hold’, and 1 ‘Underweight’ recommendation. Price targets currently range from a low of $135 to a Street-high $167 while the stock is set to open Tuesday’s session about $5 below the median $156 target. This humble placement should support a rapid advance into the mid-$150s, given strong results and guidance.

Pepsico topped out above 147 in February 2020 and plunged to a two-year low during the pandemic decline. The subsequent uptick completed a round trip into the prior high in November, yielding a pullback and bounce that completed a bullish cup and handle pattern in April. Buying interest has surged during the slow advance since that time, signaling a breakout that could gather steam in coming weeks. Better yet, the pattern forecasts a long-term target in the 190s.

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Disclosure: the author held Pepsico in a family account at the time of publication.