Does PepsiCo, Inc. (PEP) Still Have Its Head in the Game?

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Investors who have become accustomed to PepsiCo, Inc. (NYSE:PEP) outperforming rival The Coca-Cola Co (NYSE:KO) have had a bad three months. Since the last PepsiCo earnings report, Coke has outperformed PEP stock.

Does PepsiCo, Inc. (PEP) Still Have Its Head in the Game?

Sure, Coke is up just 4% to Pepsi’s 3%, but its dividend is also yielding 3.33% at current prices, while Pepsi’s just 2.8%.

Investors will be expecting a tasty treat from the PepsiCo earnings report on July 11: earnings of $1.40 per share and revenues of $15.64 billion. There’s even the whisper of $1.43 per share in earnings for PEP stock. This would put it slightly ahead of last year’s pace, where its spring quarter had earnings of $1.38 per share, and revenue of $15.40 billion.

But does PepsiCo still have its head in the game on its core business?

PepsiCo vs. Coke

The battle of Pepsi vs. Coke has always been one of hustle against deep branding, and it remains so.

PEP has a habit of grabbing name accounts, and right now its target is universities. It is even willing to change the color of its cans to make a deal.

Grabbing drinkers while they’re young, by throwing money at their overlords, is just one PepsiCo tactic that has analysts calling the company a “core holding.” Soft drink market share is a global conflict, one that has been going on for generations, and Pepsi’s international strength should pay off this quarter, thanks to a peaking dollar.

PEP’s willingness to fire first and take questions later may sometimes get it into trouble, but through most of the current recovery it has been working for investors. Pepsi shares are up 64% over the last five years, Coke’s up just 14%.

Will a New Sheriff Change Things?

But there is a new sheriff in Atlanta, James Quincey, who became CEO of the company on May 1. He has pioneered smaller cans (with less sugar) and sugar-free offerings at the company, along with divesting bottlers to focus on the higher-profit flavorings business.

Quincey has shaken-up his top floor, appointing a new “chief innovation officer” and “chief growth officer,” allowing for mistakes and making his company, well, more Pepsi-like.

His view seems consistent with my own, that companies like Coke and PepsiCo aren’t in the business of sugared water so much as they are in the business of safe, drinkable water. Coke looks like a more formidable competitor in a zero-sum game.

PEP: The Post-Noori Era

Indra Nooyi has been CEO of PepsiCo for over a decade now and recently got yet-another pay bump. Many of the “innovations” Quincey is putting in are initiatives that Nooyi made years ago.

Nooyi has been at the top long enough that analysts are worrying about a succession plan. She has been a good-enough CEO that, like a great college football coach, her underlings are often hired away to run their own companies. She’s a bit like legendary Coca-Cola CEO Roberto Goizueta, who reversed his “New Coke” gaffe and still got the public to accept a switch to artificial vanilla in the soda.

Nooyi is good at her job but success may be paling on her. She has been drawing heat for a higher political profile and, perhaps in response, Coke has been getting allies inside the Trump administration.

Bottom Line on PEP Stock

Personally, I like to sell companies at their top and buy those at their bottom. Nooyi is peaking, Quincey is just getting started. If I were buying either of these stocks right now, I would be looking at my home team, Coke, because of its higher yield and more activist executive suite.

But it’s all a matter of personal taste. If Pepsi keeps its head in the game, it should beat earnings estimates this quarter and in quarters to come.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time,  available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/pepsico-inc-pep-head-game/.

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