Pepsico Earnings Preview: Fourth Quarter 2009

Pepsico (PEP: 60.99 +0.48%) is scheduled to report their fourth quarter 2009 results before the market opens on Thursday, February 11th. Based on analysis from EarningsPreviews.com, Pepsi is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $13.42 billion and EPS of $.93. This would represent a 5% increase in revenues from last year’s $12.73 billion in the same period. The current analyst consensus estimates calls for revenues of $13.27 billion and EPS of $.91. On December 8^th, the company provided updated fourth quarter EPS guidance of $.87 - $.91.

Earnings Analysis

Strength within their Frito-Lay division along with currency benefits should lift Pepsi’s fourth quarter results. While consumers are still feeling the effects of the global recession, Pepsi’s diversified products has the company better positioned to take advantage of improving economic conditions than Coca Cola (KO: 54.94 +1.03%).

Of particular interest on this quarter’s earnings call will be an update on Pepsi’s acquisition of their bottling firms. Wall Street is looking for this acquisition to be completed in the next few weeks. This will likely remove some uncertainty for investors and allow Pepsi to resume their share repurchase program. As consumer spending improves over the next few quarters, we look for Pepsi to be one of top-performing consumers stocks.

Stock Performance

In 2009, Pepsico shares gained a modest 11% as the stock underperformed the 19% gain in the Dow Jones industrial average. Since the beginning of the year, Pepsi has traded relatively flat despite the January sell-off in the broader market.

Valuation

Pepsico is now trading at less than 15x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. Pepsi offers investors a similar dividend yield to Coca Cola, but better growth prospects and a more diverse portfolio.

Recommendation: Buy with an $70 price target

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