Oct 10, 2023

US drinks conglomerate Pepsico will kick off earnings season this week on Tuesday.

pepsico chart

PEP: Weekly Chart

PEP recovered from the pandemic sell-off and the closure of retail stores to climb to almost $200. But the stock hit a resistance wall and has tumbled in the second half of this year. It will be hard to cause a surprise that repairs the stock in the near term, and a rebound may be a short opportunity.

The company is set to report Q3 financial results before the market opens on Tuesday, Oct. 10. Analysts are looking at Q3 revenue of $23.43 billion for the quarter. That would be an increase over the $21.97 billion reported in the third quarter of the last fiscal year. The company has also beaten analysts’ estimates for revenue over nine straight quarters.

Earnings per share estimates are set at $2.15 per share for the quarter, which is another increase from last year’s $1.97 per share. During the last earnings release, Pepsi also added to its full-year revenue goal by 2%. Wells Fargo recently lowered their price target from $196 to $170, while Barclays lowered the price target from $198 to $179.

Wedbush analyst Gerald Pascarelli also lowered his target of $206 to $195 while keeping an outperform rating.

“While robust pricing has driven the YTD outperformance, we expect price/mix to moderate relative to 1H23 levels, with 3Q reflecting the start of what will ultimately be a normalisation in trend as we progress throughout the year and head into 2024,” Pascarelli said.

He added that the current valuation is compelling at current levels compared to the five-year average.

“Based on the moderation in pricing seen over the course of the quarter in US-measured channels, we expect similar levels of deceleration in developed international markets.”

Another issue flagged by Bank of America analyst Geoff Meacham was obesity drugs, which could impact consumer behaviour. Popular new drugs such as Ozempic and Wegovy have the potential to hurt companies like Pepsi.

It’s “too early to assess,” Pascarelli said, adding that “fears are likely overblown.”

The other side of that is that if obesity drugs work, then there is little desire to change junk food habits, especially at a target weight.

However, a recent report from Walmart said that there was a decline in shopping demand for certain products due to weight loss and appetite-suppressing drugs.

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