Pepsico, Inc. (PEP) shares encountered some weakness in March after the company announced earnings and plans to layoff about 8,700 people. Some investors saw this news as a negative and sold the stock, but the layoffs are part of a plan to reduce expenses by $1.5 billion by 2014. It looks like investors are now focusing on the many positives factors at Pepsi, and the shares have resumed an uptrend that looks poised to continue. Part of the renewed interest in Pepsi shares could have something to do with the fact that volatility has returned to the market, as that could be making investors seek out companies with stable revenues. The shares appear undervalued in a number of ways and here are 4 reasons to consider buying Pepsi today:
- Companies that make food, beverage and snack products are well-positioned for economic weakness because people will continue to eat and drink even when times are tough. Pepsi has top-selling brands like Aunt Jemima, Ruffles, Doritos, Quaker Mountain Dew, Gatorade, and others.
- Pepsi has a strong balance sheet and the company is posting solid profits. The company recently announced that it earned $1.15 per share for the fourth quarter of 2011.
- Pepsi shares offer a dividend that is significantly higher than average and it yields about 3%. That yield will beat most bonds and the dividend offered by peers like Coca Cola (KO). Most importantly, the dividend has a history of consistent increases and it has room to grow in the future. Pepsi has raised the dividend annually for more than a decade. Since 2001, the dividend has jumped from 14 cents each quarter, to current levels at 51.5 cents per quarter. Not many stocks have tripled the dividend in just about ten years, and dividend growth is likely to continue in the future.
- Coca Cola recently announced better than expected first quarter 2012 earnings of 89 cents per share, while the average estimate from analysts was at 87 cents per share. This better than expected performance could bode well for Pepsi when it reports results next. When you compare the two companies, the earnings estimates for the next couple of years are similar, and Pepsi offers a higher dividend yield, yet Pepsi shares can be bought for less, which could indicate undervaluation by the market. Pepsi shares could be poised to play "catch up" with Coca Cola soon.
Key Data Points For Pepsi From Yahoo Finance:
- Current price: $66.40
- 52-Week Range: $58.50 to $71.89
- Dividend: $2.06 which provides a yield of 3.2%
- 2012 Earnings Estimate: $4.09 per share
- 2013 Earnings Estimate: $4.44 per share
- P/E Ratio: about 14 times earnings
Key Data Points For Coca Cola From Yahoo Finance:
- Current price: $73.95
- 52-Week Range: $63.34 to $74.48
- Dividend: $2.04 which provides a yield of 3.8%
- 2012 Earnings Estimate: $4.08 per share
- 2013 Earnings Estimate: $4.47 per share
- P/E Ratio: about 18 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.