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PepsiCo Should Post Solid 2022 Returns

PepsiCo Inc. (PEP) won the cola wars a long time ago, outperforming Dow component Coca-Cola Co. (KO) by a country mile. Ten year returns tell the tale, with PEP gaining an impressive 166% prior to dividends while KO has added just 77%. The company has outpaced its rival by an even greater margin since March 2020, benefiting from broad diversification into snacks while KO’s beverage-heavy lineup suffered from half-empty stadiums, restaurants, and movie theaters.

Managing Inflation Headwinds

Rising inflation has challenged the bottom lines of both operations but PepsiCo’s strong management has implemented effective cost cutting and productivity gain initiatives that are expected to produce a $1 billion in annual savings through 2023, despite less income from restaurants, theaters, and stadiums. This proactive approach includes improvements to the company’s global management footprint and the reengineering of its distribution network.

Argus analyst John Staszak raised PEP’s price target to $195 on Tuesday, noting “at 24.9-times our revised 2022 EPS estimate, the shares are trading in line with their five-year historical average. We think that investors will continue to favor the shares given the company’s ability to raise its dividend and deliver strong growth. Our revised target price of $195 (up from $180), combined with the dividend, implies a total potential return of about 15% from current levels”.

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 11 ‘Buy’, 1 ‘Overweight’, 9 ‘Hold’, 2 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $160 to a Street-high $195 while the stock is set to open Wednesday’s session about $3 above the median $173 target. Although this placement suggests PepsiCo is fairly valued at this time, the current rotation into dividend payers should benefit price action in the first quarter.

ANNUNCIO PUBBLICITARIO

PepsiCo completed a breakout above the February 2020 peak at 147.20 in July 2021, entering a strong uptrend that stalled at a 7-year rising highs trendline in August. It cleared that resistance level in November and took off in another uptick about one month later, posting an all-time high at 174.45 on Tuesday. A pullback to new support near 165 should mark a low risk buying opportunity in this configuration, ahead of continued upside toward 200. The current 2.49% dividend yield makes this set-up even more attractive for longer-term strategies.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held PepsiCo and Coca-Cola in family accounts at the time of publication. 

This article was originally posted on FX Empire

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