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Société Générale Upgrades PepsiCo to a ‘Buy’

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Dec. 16 2016, Updated 7:35 a.m. ET

Price movement

PepsiCo (PEP) has a market cap of $151.9 billion. It rose 0.87% to close at $105.63 per share on December 13, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 4.0%, 3.1%, and 8.8%, respectively, on the same day.

PEP is trading 4.1% above its 20-day moving average, 1.6% above its 50-day moving average, and 2.3% above its 200-day moving average.

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Related ETF and peers

The SPDR S&P 500 Growth ETF (SPYG) invests 0.91% of its holdings in PepsiCo. The YTD price movement of SPYG was 8.2% on December 13.

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

  • Coca-Cola (KO) — $180.2 billion
  • Mondelēz International (MDLZ) — $67.1 billion
  • Dr Pepper Snapple Group (DPS) — $16.6 billion

PepsiCo’s rating

Société Générale has upgraded PepsiCo’s rating to a “buy” from “hold.”

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Performance of PepsiCo in fiscal 3Q16

PepsiCo (PEP) reported fiscal 3Q16 net revenues of $16.0 billion, a fall of 1.8% from $16.3 billion in fiscal 3Q15. Revenue from its Frito-Lay North America and North America Beverages segments rose 3.4% and 2.9%, respectively. Revenue from its Quaker Foods North America, Latin America, and Europe Sub-Saharan Africa segments fell 2.1%, 22.8%, and 1.9%, respectively, between fiscal 3Q15 and fiscal 3Q16.

Its net income and EPS (earnings per share) rose to $2.0 billion and $1.37, respectively, in fiscal 3Q16 compared to $533.0 million and $0.36, respectively, in fiscal 3Q15. It reported non-GAAP[1. generally accepted accounting principles] EPS of $1.40 in fiscal 3Q16, a rise of 3.7% compared to fiscal 3Q15.

PepsiCo’s cash and cash equivalents and inventories rose 12.8% and 14.7%, respectively, between fiscal 4Q15 and fiscal 3Q16.

Projections

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

  • core EPS of $4.78
  • organic revenue growth of ~4.0%, excluding the impact of a 53rd week and structural changes, but including the deconsolidation of its Venezuelan operations
  • productivity savings of ~$1.0 billion
  • more than $10.0 billion in cash flow from operating activities
  • free cash flow of more than $7.0 billion, excluding certain items

In the final part of this series, we’ll discuss Verifone Systems (PAY).

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