Expect A Big Day For Pepsi's Stock

Morgan Stanley’s Dara Mohsenian believes PepsiCo, Inc. PEP shares are likely to see a positive reaction following the company’s robust Q3 results and raised FY guidance.

Mohsenian maintained an Overweight rating on the company, with a $121 price target.

Related Link: Investors Cheer PepsiCo's Q3 Results, Outlook

PepsiCo reported Q3 adjusted EPS of $1.40, well ahead of the consensus and estimate, driven by a 1 percent topline/gross profit beat, further supported by better than expected SG&A expense leverage, which led to a robust operating profit beat of 4 percent.

Below the line EPS was also helped by a lower than anticipated tax rate, while organic growth came in at a strong 4.2 percent, beating the consensus and the estimate.

“Core GM's were up a solid +50 bps y-o-y, while SG&A was lower than expected as a percentage of sales, despite a 65 bps increase in A&M, driving a +3.7 percent operating profit beat vs consensus,” Mohsenian mentioned.

Listing PepsiCo among the top mega-cap picks, the analyst stated the robust Q3 results and raised guidance confirmed that the strong underlying results weren't reflected in the stock’s valuation discount versus lower growth large cap CPG peers.

Guidance Raised

The company raised its core EPS guidance for FY16 from $4.71 to $4.78, slightly ahead of the consensus, since management now expects core constant currency EPS growth of 10 percent, with lower FX headwinds.

The FY organic sales growth guidance was left unchanged, as were other line items.

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