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PepsiCo Q3 Revenue Grows Over 5% to $18.09 Billion, Forecasts Solid 2020 Earnings; Target Price $155

Vivek Kumar
·3 min read

PepsiCo Inc, an American multinational food, snack and beverage corporation, reported that its overall net revenue rose more than 5% to $18.09 billion in the third quarter and forecasts 2020 core earnings of $5.50 per share, sending its shares up about 1% on Thursday.

The company which holds approximately a 32% share of the U.S. soft drink industry said its attributable net profit rose 9.1% to $2.29 billion. Excluding items, the company earned $1.66 per share, beating expectations of $1.49 per share, Reuters reported.

PepsiCo forecasts full-year organic revenue growth of about 4%, $10 billion in cash from operating activities and free cash flow of about $6 billion.

“Driven by strength in PepsiCo’s (PEP) snacks portfolio, elevated at-home consumption, and moderating headwinds in PEP’s bevs business, the co. remains well-positioned to navigate the challenges of the current env’t. While we expect shares to trade higher on the print, valuation looks generally full at ~24x P/E,” said Kevin Grundy, equity analyst at Jefferies.

At the time of writing, PepsiCo’s shares traded 0.85% higher at $139.78 on Thursday; the stock is also up over 2% so far this year.

PepsiCo stock forecast

Eleven analysts forecast the average price in 12 months at $144.64 with a high forecast of $155.00 and a low forecast of $130.00. The average price target represents a 3.47% increase from the last price of $139.79. From those 11, six analysts rated ‘Buy’, five analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $155 with a high of $180 under a bull scenario and $104 under the worst-case scenario. PepsiCo had its price objective upped by research analysts at to $139 from $137.

Several other equity analysts have also updated their stock outlook. JP Morgan lowered their stock price forecast to $149 from $154; UBS raised the price target to $140 from $136; Deutsche bank upped their price objective to $140 from $139 and Guggenheim raised their target price to $151 from $148.

Analyst comment

“PepsiCo (PEP) is our top beverage pick. We forecast Pepsi will post superior topline growth relative to peers driven by exposure to the higher growth/higher margin snacks category (2/3 of PEP’s profit). Snacks is a higher growth category given: (1) shift to snacking vs. sit-down meals; (2) less pressure from health/wellness vs. beverages, and (3) PEP’s leading share in snacks vs. fragmented competition, driving share gains, and higher margins/ROIC,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We also see more structural Pepsi market share benefits post-COVID, as PEP uses its DSD distribution advantage, to gain shelf space and share in snacks, and in beverages, where PEP is advantaged vs competition with a much lower mix in away-from-home,” he added.

Upside and Downside Risks

Upside: Higher FLNA snacks topline growth, improving North America beverages business on higher investment spend and on-premise recovery, better GM expansion on favourable commodities/better pricing, and higher cost savings from restructuring, highlighted by Morgan Stanley.

Downside: Lower return from PEP’s reinvestment, macro volatility, commodity and FX volatility, greater COVID impacts, worse market share trends in beverages, soda taxes.

Check out FX Empire’s earnings calendar

This article was originally posted on FX Empire