PepsiCo Reports Solid Earnings Led By Frito-Lay Business

PepsiCo, Inc. (Ticker Symbol: PEP) released its earnings results that beat on both the top and bottom line. The food and beverage giant reported an earnings per share beat of  $1.54 per share vs. Wall Street analysts’ expectations of $1.50.  Pepsi also released a revenue beat of $16.449 billion vs. Wall Street analysts’ expectations of $16.426 billion.  The New York-based soda giant reported net income of $2.04 billion which was up from $1.82 billion this same quarter last year.

Domestically, Pepsi saw a strong performance out of its beverage business, with Starbucks coffee drinks and its water business leading the way. To help battle its struggling soft drink sector, Pepsi is investing more in the sparkling water space with Bubly and in energy drinks like the Mountain Dew Game Fuel.  Frito-Lay continues to be the strongest performing area domestically for Pepsi with 5% organic revenue growth. Pepsi also saw a solid performance from its Quaker Foods business, which had its best quarter in three years, seeing growth out of its cereals and Aunt Jemima brand goods.

Above is a chart of the past two years of Pepsi’s stock.  The stock spent the second half of 2017 trading in a range between the price levels of roughly $110 and $120.  In the first quarter of 2018,  the stock began to top, forming a bearish divergence pattern, as indicated on the chart by the red arrows, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Pepsi’s case.

The stock proceeded to trade lower over the next two quarters, dropping just over 20% before finding price support just under the $100 price level.  PepsiCo’s stock broke above its 2018 downtrend late in the second quarter of 2018 and shot up through its 50-Day Moving Average.  The stock was stuck in a choppy trading range, finding support twice when the price dropped 4% below its 200-day Moving Average.  In the first quarter of 2019, the stock traded in an ascending triangle pattern, which is a pattern where the top part of the triangle appears flat and the bottom part of the triangle has an upward slant. Pepsi broke out of this pattern to the upside and rallied over 20% to trade to an all-time high of $135.24 on June 14th of this year.

(Chart above courtesy of ​​)

Based on a survey of 13 analysts offering 12-month price targets, the average price target for PepsiCo’s stock is $128.50. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $132.36.

Pepsi was able to release solid quarterly results led by its snacking unit and sparkling water business. Pepsi continues to reward shareholders for holding its stock and currently the stock is trading just 2.7% from its all-time high, reached last month. Investors in the space should look to rival Coca-Cola’s (Ticker Symbol: KO) earnings release on July 24th for fresh news within the sector.