What to Expect When PepsiCo Reports

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PepsiCo Inc. (NYSE: PEP) is scheduled to release its most recent quarterly results before the markets open on Wednesday. The consensus estimates from Thomson Reuters are $1.43 in earnings per share (EPS) and $16.31 billion in revenue. The third-quarter financial results from last year were $1.40 in EPS on revenue of $16.03 billion.

To kick off the week, one analyst decided to downgrade PepsiCo ahead of the report, and it just might be well founded. So far this year the stock has underperformed the broad markets, up only 4% year to date, as well as flat in the past 52 weeks.

Jefferies downgraded PepsiCo to a Hold rating from Buy and lowered its price target to $108 from $133. This new target implies downside of 3% from the most recent closing price at $111.43.

The firm made this downgrade due to slowing North American Beverage (NAB) trends, contracting food multiples, high exposure to difficult U.S. environment and likely need for reinvestment should cap the stock over the next year.

Jefferies now sees modest downside to Pepsi’s shares over the near term with foreign exchange neutral operating income growth likely to slow to about 4% to 5% (versus the consensus of roughly 6%), which should constrain its multiple.

The U.S. beverage industry remains fiercely competitive, with PepsiCo feeling pressure from both incumbents, like Coca-Cola and Dr Pepper Snapple, as well as nascent brands as food multiples also rapidly compress. Its prior view that productivity savings would drive upside and improving NAB trends would drive multiple expansion is no longer valid.

Ahead of the earnings report a few other analysts weighed in on Pepsi:

  • Susquehanna has a Buy rating with a $135 price target.
  • Cowen has a Buy rating.
  • Macquarie has an Outperform rating with a $125 price target.
  • Credit Suisse has a Neutral rating and a $124 price target.
  • RBC has a Hold rating with a $115 target price.
  • BMO Capital Markets has a Hold rating with a $120 price target.
  • JPMorgan has an Overweight rating.

Shares of PepsiCo were last seen at $109.30, with a consensus analyst price target of $122.90 and a 52-week range of $98.50 to $119.39.