PepsiCo Earnings Preview

The three major U.S. equity indexes closed lower Friday. The Dow Jones industrials ended the day down 2.11%, the S&P 500 closed 2.8% lower and the Nasdaq slumped 3.8%. All 11 sectors closed lower, with tech (4.14%) and consumer cyclicals (3.54%) posting the largest losses. Energy (0.72%) and consumer staples (1.55%) posted the smallest losses. Chipmaker AMD dropped nearly 14% on Friday after issuing a profit warning. PayPal traded down about 3.3% in Monday’s premarket following a weekend of recriminations over a disputed policy change. All three major indexes traded down by about 1% in Wednesday’s premarket session and opened mixed.

This week marks the beginning of the September-quarter earnings reporting season. The first of the most notable reports are due out after markets close Tuesday, with more coming on Thursday and Friday from the big U.S. banks and the world’s largest chipmaker.

Snack food and soft-drink maker PepsiCo Inc. (NYSE: PEP) reports its results after Tuesday’s closing bell.

The stock has added more than 7% to its share price over the past 12 months, including a drop of nearly 10% since mid-August. Pepsi is outperforming the S&P 500 for the year to date, down about 5.1% compared to a decline of nearly 24% in the index, and better than the consumer staples sector which has dropped almost 14% in 2022. What the company has to say about the current quarter, normally its highest revenue-producing quarter of the year, will be more important than September-quarter results.

Of 21 brokerages covering the stock, 10 rate the shares at Buy or Strong Buy and another 10 have a Hold rating. At a recent share price of around $161.60, the upside potential based on a median price target of $183 is about 13.2%. At the high price target of $200, the upside potential is 23.8%.

Third-quarter revenue is forecast at $20.8 billion, which would be up 2.9% sequentially and about 3.0% higher year over year. Adjusted earnings per share (EPS) are forecast to dip sequentially by 0.7% to $1.85, but that is but up 3.4% year over year. For the full 2022 fiscal year, analysts currently expect PepsiCo to post revenue of $83.51 billion, up just over 5%, and EPS of $6.70, or 7% higher.

PepsiCo stock trades at 24.1 times expected 2022 EPS, 22.3 times estimated 2023 earnings of $7.23 and 20.5 times estimated 2024 earnings of $7.87 per share. The stock’s 52-week range is $153.37 to $181.07. PepsiCo pays an annual dividend of $4.60 (yield of 2.85%). Total shareholder return for the past year was 6.16%.

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