Can PepsiCo Get Q2 Earnings Season Off to a Good Start?

All three major U.S. equity indexes closed higher Thursday, led by the Nasdaq, which ended the day up 2.3%. The S&P 500 added 1.5% and the Dow Jones industrials saw a gain of 1.1%. Before markets opened Friday, the U.S. Department of Labor released its payrolls report for June. Job growth came in well above estimates, reducing concerns about a recession but sending bond prices higher. That weighed on stocks after Friday’s opening bell, with the Dow down 0.1%, the S&P 500 down 0.3% and the Nasdaq down 0.6%. The unemployment rate was unchanged at 3.6%.

After markets closed Thursday, apparel maker Levi Strauss reported second-quarter results that beat both the profit and revenue estimates. The company reiterated its previous annual earnings and revenue guidance and shares traded up about 4% in Friday’s premarket session.

The second quarter’s earnings season begins in earnest next week, with reports due from four of the nation’s biggest banks, one of its largest airlines, a packaged food giant and the world’s largest semiconductor manufacturer. One Dividend King, PepsiCo Inc. (NYSE: PEP), gets the week off to a good start.

The snack and soft-drink maker has added more than 17% to its share price over the past 12 months, including an 11% drop between late April and mid-June to the stock’s 52-week low. Shares have added more than 9% since the low was posted. The company reports results before markets open on Tuesday.

PepsiCo has raised its dividend every year for 50 consecutive years, winning a spot among the 44 Dividend Kings. The company’s payout ratio for the past 12 months is 58% and, with free cash flow per share of $5.41, there is room for the dividend to continue growing.

Of 21 brokerages covering the stock, 10 rate the shares a Buy or Strong Buy and another 10 have a Hold rating. At a recent share price of around $170.40, the upside potential based on a median price target of $182.00 is about 6.8%. At the high price target of $200.00, the upside potential is 17.4%.

Second-quarter revenue is forecast at $19.51 billion, up 20.4% sequentially and up about 1.5% year over year. Adjusted earnings per share (EPS) is forecast to rise sequentially by 34.6% to $1.74, up two cents year over year. For the full 2022 fiscal year, analysts currently expect PepsiCo to post revenue of $82.64 billion, up 4.0%, and EPS of $6.66, up 6.4%.

The stock trades at 25.6 times expected 2022 EPS, 23.6 times estimated 2023 earnings of $7.22 and 21.7 times estimated 2024 earnings of $7.83 per share. The stock’s 52-week trading range is $148.78 to $177.62. PepsiCo pays an annual dividend of $4.30 (yield of 2.7%). Total shareholder return for the past year was 16.9%.

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