By Brendan Gilmartin
PepsiCo (NYSE:PEP) is slated to report 3Q 2011 earnings before the bell on Wednesday, October 12. The results are typically reported at 7:00 a.m. EST with a conference call to follow at 8:00 a.m. Pepsi is reporting earlier in the cycle than normal and could impact the index futures, given the absence of any other major announcements at the time it is due to report.
Outliers & Strategy
- Key measures:
- Adjusted Earnings Per Share ((NYSEARCA:EPS)): The value for this measure is typically comparable to consensus EPS estimates.
- Revenues: Top-line growth is seen rising more than 11% thanks to strength in international markets.
- PepsiCo is expected to report $1.30 per share (range is $1.25 – $1.33), on revenue of $17.28 bln, up 11.4% from the year-ago period. Results from both measures are expected to influence the direction of trading.
- PepsiCo CFO Hugh Johnston recently told attendees at the Barclay’s Back to School Conference that emerging markets now account for more than 30% of total revenue, potentially mitigating some of the losses in North America and Europe.
- Following the recent drop in the share price, Pepsi is now trading at a mere 12.9x forward earnings and 1.5x sales. Furthermore, the company is paying a 3.38% dividend yield, well above the S&P average.
- Coca Cola (NYSE:KO) and Dr. Pepper Snapple (NYSE:DPS) are clear sympathy plays off the Pepsi results.
- 10/10: UBS lowered its price target on PepsiCo to $72 per share and lowered earnings estimates through 2012, based in part on decelerating sales growth.
- 09/23: The Wall Street Journal reported that PepsiCo could split into two companies, while Frito Lay could be a takeover target.
- 09/19: CLSA downgraded PepsiCo to an Underperform rating, based on weaker U.S. sales, rising corn prices, increased competition in the snacking segment, and concerns over the recent expansion into Russia. Barron’s
PepsiCo shares are off nearly 15% from the 52-week high of $71.89 established on May 19, en route to the lowest level since July, 2010, breaking support near $60. Since succumbing to that level, the shares have bounced back, overtaking the 20-Day SMA near $61.25, with near term resistance at $62.00, coinciding with the 50-Day SMA. The next key levels are $63, followed by $65, just above the 200-Day SMA. Support is at $60, followed by the 52-week low near $58.50. (Chart courtesy of StockCharts.com)
PepsiCo shares have been hit hard in recent months amid concerns over the outlook for the global economy, emerging markets, a stronger Dollar, and a stagnant performance in North America. Pepsi is also being weighed down by increased competition from the likes of Diamond Foods (DNMD) along with compressed margins stemming from the record spike in corn products – a key ingredient across all its product lines. Much of these concerns appear priced in with the shares trading at just 15.3x trailing earnings (below the 5-year average of 18.2x) and a mere 1.6x sales, while distributing a 3.42% dividend yield. Given the cautious backdrop, an in-line to slightly higher figure for Adjusted EPS, coupled with a solid revenue figure could be greeted positively in the marketplace and possibly give rise to the index futures at the time of the release.
Disclaimer: By using this report, you acknowledge that Selerity, Inc. is in no way liable for losses or gains arising out of commentary, analysis, and or data in this report. Your investment decisions and recommendations are made entirely at your discretion. Selerity does not own securities in companies that they write about, is not an investment adviser, and the content contained herein is not an endorsement to buy or sell any securities. No content published as part of this report constitutes a recommendation that any particular investment, security, portfolio of securities, transaction or investment strategy is suitable for any specific person.