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Credit Suisse Has Rated PepsiCo ‘Outperform’

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Sep. 20 2016, Updated 8:04 a.m. ET

Price movement

PepsiCo (PEP) has a market cap of $151.8 billion. It fell 0.19% to close at $105.28 per share on September 16, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.2%, -2.3%, and 7.7%, respectively, on the same day.

PEP is trading 1.3% below its 20-day moving average, 2.0% below its 50-day moving average, and 3.9% above its 200-day moving average.

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Related ETFs and peers

The SPDR S&P 500 Growth ETF (SPYG) invests 0.92% of its holdings in PepsiCo. The ETF tracks an index of primarily large-cap growth stocks. The index selects companies from the S&P 500 Index based on three growth factors. The YTD price movement of SPYG was 4.3% on September 16.

The Consumer Staples Select Sector SPDR ETF (XLP) invests 4.5% of its holdings in PepsiCo. The ETF tracks a market-cap-weighted index of consumer staples stocks drawn from the S&P 500.

The market caps of PepsiCo’s competitors are as follows:

  • Coca-Cola (KO): $182.8 billion
  • Mondelez International (MDLZ): $66.9 billion
  • Dr Pepper Snapple Group (DPS): $16.9 billion

PepsiCo’s rating

Credit Suisse has initiated coverage of PepsiCo with an “outperform” rating and set the stock’s price target at $121 per share.

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PepsiCo’s performance in fiscal 2Q16

PepsiCo reported fiscal 2Q16 net revenues of $15.4 billion, which represents a fall of 3.1% from $15.9 billion in fiscal 2Q15. Revenue from Frito-Lay North America, Quaker Foods North America, and North America Beverages rose 3.2%, 2.7%, and 0.63%, respectively.

Revenues from its Latin America; Europe Sub-Saharan Africa; and Asia, the Middle East, and North Africa segments fell 22.8%, 5.4%, and 1.5%, respectively, between fiscal 2Q15 and fiscal 2Q16. The company’s gross profit margin and operating profit rose 2.0% and 2.2%, respectively.

Net income and EPS

In fiscal 2Q16, PepsiCo’s net income and EPS (earnings per share) rose to $2.0 billion and $1.38, respectively, compared to $2.0 billion and $1.33 in fiscal 2Q15.

PEP’s cash and cash equivalents and inventories rose 6.0% and 28.2%, respectively, from fiscal 4Q15 to fiscal 1Q16. In fiscal 2Q16, its current ratio and debt-to-equity ratio rose to 1.4x and 4.9x, respectively, compared to 1.3x and 4.8x in fiscal 4Q15.

Projections

PepsiCo (PEP) made the following projections for fiscal 2016:

  • core EPS of $4.71
  • organic revenue growth of ~4%, which excludes the impact of a 53rd week and structural changes but includes the deconsolidation of its Venezuelan operations
  • productivity savings of ~$1 billion
  • more than $10 billion in cash flow from operating activities
  • free cash flow of more than $7 billion, which excludes certain items
  • net capital spending of ~$3 billion
  • a return of ~$7 billion to its shareholders through dividends of ~$4 billion and share repurchases of ~$3 billion

In the next part, we’ll take a look at Lululemon Athletica (LULU).

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