Consumer Products

What to Expect When Pepsi Reports Thursday Morning

PepsiCo Inc. (NASDAQ: PEP) is set to report its third-quarter financial results before the markets open on Thursday. The consensus estimates are calling for $1.50 in earnings per share (EPS) and $16.93 billion in revenue. In the same period of last year, the soft drink and snacks giant said it had $1.59 in EPS and $16.48 billion in revenue.

After the second-quarter report, Merrill Lynch reiterated a Buy rating and raised its price target to $142 from $135. The brokerage firm believes that PepsiCo is committed to fiscal 2019 being an investment year and, as a result, any operating upside is expected to be reinvested. The firm’s fiscal 2019 to 2021 EPS estimates remain unchanged at $5.50, $5.92 and $6.36, respectively.

Merrill gave its investment rationale as follows:

We believe that Pepsi has the resources and plans to balance consistent investment, growth and returns. Given recent management changes, we see a possibility of changes in thinking on Pepsi’s portfolio (splits, spins, bottler refranchising) and other strategic items to enhance investor returns.

At the same time, CFRA said that it remains bullish on the future of Pepsi under the leadership of its new board chair and chief executive, who is forecast to deliver more robust EPS growth and more generous cash returns to shareholders. While the stock’s valuation appears fair to even full on near-term earnings estimates, looking out a few years, CFRA thinks Pepsi is capable of generating north of $7 per share in earnings and, on that basis, consider the stock inexpensive at current levels.

Excluding Wednesday’s move, Pepsi had outperformed the broad markets, with the stock down about 24% year to date. In the past 52 weeks, the stock was up about 23%.

A few other analysts weighed in on Pepsi ahead of the results:

  • Guggenheim has a Hold rating with a $130 price target.
  • Deutsche Bank has a Hold rating with a $142 target price.
  • Morgan Stanley rates it as Overweight with a $149 price target.
  • Credit Suisse has an Underperform rating and a $117 target price.
  • Atlantic Securities rates its Overweight with a $145 price target.

Shares of Pepsi traded down close to 3% on Wednesday, at $133.64 in a 52-week range of $104.53 to $139.18. The consensus price target is $135.15.