Is PepsiCo Still A Great Stock To Buy Now?
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
PepsiCo (NYSE: PEP) is a renowned food and beverage company with a diversified product portfolio that includes a long list of acceptable brands. The company dominates the worldwide carbonated soft drink industry, along with market leader, Coca-Cola (NYSE: KO). The two giant producers of non-alcoholic beverages are well-known globally as recognizable brands in the consumer beverage industry. Early this month, both companies reported better-than-expected quarterly earnings, proving to shareholders that their products are still much-liked by their many consumers.
Following the release of the company’s better-than-expected 2013 first quarter earnings results, PepsiCo stock rallied with a 5% price gain to attain a new high in the last year. That is something to cheer, and based on the Street ratings, some analysts have now placed a "buy" recommendation on PepsiCo stock. However, considering that the stock has gained more than 21% in the last 52 weeks, it is normal for a critical mind to ask: is it still the right time to buy PepsiCo stock?
Looking at the metrics of the stock, I think it is still the right time to buy PepsiCo. Besides, the good run we have witnessed in the stock market lately isn’t peculiar to only PepsiCo. Indeed, a few of the top range companies, including PepsiCo, appear just too overvalued to be considered great buys at the moment. The recent price performances of a few of other consumer staple stocks, such as Johnson & Johnson (NYSE: JNJ), General Mills, and Coca-Cola, attest to this assertion. Each of these stocks has rallied price gains by over 20% year-to-date due to improved earnings and superb levels of profitability.
Johnson & Johnson has recently released improved financial results, with increases recorded in major aspects of its financials, including revenue, which went up by 3%, and a 10% increase in its diluted earnings per share over the previous year. Unfortunately, many investors might find Johnson & Johnson too expensive now, as the stock is currently trading at its all-time high.
The upsurge in price performances of these stocks happened because investors have been looking and scrambling for yield anywhere they can find it. These companies, including PepsiCo, are still highly profitable and are certain to keep giving good dividend payouts to investors for years to come. As long as interest rates remain incredibly low, investors are still likely to continue to scramble for these high yield stocks.
Evaluation and outlook
PepsiCo has taken steps to improve its product portfolio. That ensures the company’s revenue has been diversified within the food and beverage sectors. The company’s long list of brands, about 22 right now, appeals greatly to the taste of consumers, resulting in increased and sustained income. PepsiCo presently makes up to $1 billion per brand in sales per annum.
PepsiCo’s recently released quarterly financial results show a 12% increase in profits and a 4% increase in revenue, directly generated from sales. The company continues to gain advantage over its competitors in emerging markets such as China and India via its snack business, which helped it mitigate the 3% loss in sales revenue from its North American beverage section last quarter. According to analysts, PepsiCo will continue to increase its operating cash flow and productivity in 2013. For full 2013, the projected EPS will be close to $4.39, which is 3.80% higher than 2012, with revenue of $68 billion. On the other hand, Coca-Cola will have an EPS of $2.14 (1.90% higher than last year) for the full 2013, with revenue of $48.96 billion.
With regard to valuation, PepsiCo takes the lead over its rival, Coca-Cola, by 0.1. Though Coca-Cola is more affordable for investors, with regard to price per share compared to PepsiCo, Coca-Cola can’t match PepsiCo’s financial results quarter after quarter. On the scale of profitability, Coca-Cola holds the ace, as it is more profitable than PepsiCo. But, the ongoing share buyback initiative of PepsiCo shouldn’t be overlooked, as it has the inherent tendency to improve stock price appreciably in the foreseeable future, compared with Coca-Cola. In addition, PepsiCo’s dividend history is stronger, and its dividend yield of about 3.1% is higher, when compared with Coca-Cola. PepsiCo is a good dividend stock, which value investors love. At an annualized rate of 11% increase in dividend payouts for the past five years, PepsiCo is my choice and a stock I recommend for value investors to buy, possibly at its next dip.
Muhammad Bazil has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Johnson & Johnson, and PepsiCo. The Motley Fool owns shares of Johnson & Johnson and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!