Traditionally, PepsiCo, Inc. (PEP) was considered a relatively straightforward investment choice, especially given its blue chip status. However, as any wise investor will attest, it is advisable to regularly re-evaluate the reasons for investment in blue chip stocks. The reason behind this is to uncover a deeper understanding as to why the financial market is currently trending towards or against a particular stock. Once an investor has reassured themselves that the market has been under-pricing a stock by serious proportions, they might then consider obtaining the stock for a suitable amount of time.
Current market trends have analysts forecasting single year target price in the avenue of $71 to $85, with the general consensus resting at the $78 mark. Furthermore, I have rated PepsiCo, Inc stock as being a Strong Buy, with the median consensus being to Hold.
In the last four quarters, ending in March 2011, PepsiCo, Inc.'s declared EPS was on par with the analysts' consensus estimates. It is a general belief that recent weaknesses in the stock have come about as result of 'profit booking' and have very little to do with financial position or performance.
Current and On-Going Developments
In the last year, PepsiCo's Canadian unit made announcements that they would be selling their 7UP soft drink products in 100% recycled PET bottles. PET bottles are high-quality food grade bottles engineered to meet all regulatory requirements. The bottles, which came into production in fall of 2011 have the same look and feel as traditional bottles. Despite the fact that this transition feels like a PR move, it has done wonders to strengthen the company's position as an eco-friendly organization, one that takes steps to reduce their overall carbon footprint and reduces their energy consumption. Furthermore, it has begun to position PepsiCo for strong consideration in responsible investing indices. As history would detail, once a business's stock begins to include more indices, liquidity, price stability, and price discovery of that business's stocks begin to experience rapid increases.
PepsiCo has also made public announcements of their intent to purchase the remaining 23% of Wimm-Bill-Dann Foods OJSC (WBD), the leading branded food and beverage firm in Russia. Wimm-Bill-Dann manufactures juices, mineral water, baby food, and dairy products and prior to this announcement PepsiCo held 77% stake in WBD. The finalization of this deal helped to strengthen PepsiCo's position in the rapidly growing Eastern European and Central Asian market. Based on this acquisition, PepsiCo is on track to meet their overall goal of establishing a $30 billion nutrition and health food business by the end of 2020.
It has been stipulated that PepsiCo is in negotiations with Asahi Group Holdings Ltd, the leading producer of beer in Japan. Asahi reportedly wants to purchase PepsiCo's Malaysian bottling company, Permanis. Once finalized, PepsiCo can expect a significant payoff.
Is The Bottle Still Bubbly?
There are many great reasons why a savvy investor should consider investing in PepsiCo. Not only is the company expected to see earnings growth among some of the highest in the soft drink industry, over the next half decade analysts believe that the company will see a growth in earnings at an annual average of 8.3%. Pepsi's EPS growth for the next decade rests at just over 146.6%, with current stock having a value of more than $110. For the time being, stock in Pepsi is being classified as being in the bear phase, meaning it is possible to obtain stocks for a fairly inexpensive rate. With a target price being set at $71.87 and a stop limit / trailing stop limit of $67.93, there is substantial potential to achieve a 4.8 to 1 profit / loss.
At the present time, stock in Pepsi is classified as being in the bear phase, meaning it is possible to obtain stocks for a fairly inexpensive rate. Now is the time to buy into the beverage giant. If you already have stocks, you may want to hold on to them for a little while longer.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.