What to Expect When Pepsi Reports on Tuesday

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PepsiCo Inc. (NASDAQ: PEP) is scheduled to release its most recent quarterly results before the markets open on Tuesday. The consensus estimates from Thomson Reuters call for $1.57 in earnings per share (EPS) and $16.36 billion in revenue, while in the same period of last year the beverage and snack maker posted EPS of $1.48 and $16.24 billion in revenue.

In August, Pepsi bought SodaStream International Ltd. (NASDAQ: SODA). The America food giant will pay a premium for an already surging stock, fueled by extraordinary financial results.

The price is so high, as a matter of fact, that PepsiCo may be overpaying. At least its board can make the case the SodaStream’s revenue rose by over 30% last quarter.

SodaStream offers PepsiCo two advantages. First, its products comprised more of water than of sugar. Second, people use the product at home, while PepsiCo products are bought at retail outlets. Ramon Laguarta, CEO-elect and president of PepsiCo, said as much:

SodaStream is highly complementary and incremental to our business, adding to our growing water portfolio, while catalyzing our ability to offer personalized in-home beverage solutions around the world. From breakthrough innovations like Drinkfinity to beverage dispensing technologies like Spire for foodservice and Aquafina water stations for workplaces and colleges, PepsiCo is finding new ways to reach consumers beyond the bottle, and today’s announcement is fully in line with that strategy.

PepsiCo will pay $144 a share for SodaStream, which comes to $3.2 billion. That is on top of a stock price that has risen from a 52-week low of $57.12 (at the time) to a high for the period of $130.30. The premium may seem small, but not for the many people who bought the stock earlier in the year.

In the June quarter, SodaStream revenue rose 31% to $172 million. Net income was up 87% to $26 million. SodaStream had nearly $200 in cash and cash equivalents at the end of the quarter. Nevertheless, with a revenue run rate of $750 million, the $3.2 billion is not cheap.

Overall, Pepsi has underperformed the broad markets, with the stock flat over the past 52 weeks. In just 2018 alone, the stock was down about 7%.

A few analysts weighed in on Pepsi ahead of the report:

  • Susquehanna has a Positive rating with a $135 price target.
  • Macquarie has an Outperform rating and a $122 price target.
  • Guggenheim has a Neutral rating with a $117 price target.
  • Goldman Sachs has a Sell rating with a $108 target price.
  • SunTrust Banks has a Hold rating with a $110 target price.
  • Citigroup has a Neutral rating with a $118 price target.

Shares of Pepsi were last seen at $111.84, with a consensus analyst price target of $118.05 and a 52-week trading range of $95.94 to $122.51.

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