Journalists Laud PepsiCo; Analysts are Less Sure

Indra Nooyi has been CEO at Pepsico (PEP) for about 18 months and is getting glowing reviews from, among others, Betsy Morris at Fortune magazine. And at Seeking Alpha, several articles recommend the stock as a good dividend and defensive play in a bear market and slowing economy.

The one thing that has analysts worried is whether PEP can manage and profit from rapidly rising food costs. So far, the markets don't seem to be as impressed as some analysts and journalists who like the way the company is moving into healthier foods and drinks and becoming more aggressively global.

Daily, weekly, monthly and point and figure charts are saying PEP is a sell, with a bearish downside objective of $52 on the $70.28 stock. PEP January 2010 70 calls say the stock will be worth $79 before the options expire, while the January 2010 70 puts warn that the stock could fall to $61.50.

In other words, investors could be paying a high price for PEP's 2.1% dividend and "protection" against a bear market. Analysts have a somewhat weak buy rating on the stock. There is no question that PEP's statistics are pretty impressive. At investors.com, PEP gets an A for sales + profit margins + return on equity. Its earnings per share have been growing faster than 72% of publicly traded companies, and its ranks for relative strength (79) and industry group strength (B) are good.

But PEP's accumulation/distribution rating is only a D, meaning institutional investors aren't buying at the moment. Morningstar gives the stock three out of a possible five stars because it is near the independent advisory firm's fair value estimate of $77. Morningstar says consider buying PEP at $65.50 and consider selling at $92.40. That's more optimistic than the options market and point and figure charts.

In any case, Fortune's article is a good read.

Disclosure: I don't have a position in PEP, but my investment club has had one for a long time.