Pepsi Hits 52-Week High on Strong Q2, Upbeat Outlook

Shares of PepsiCo, Inc. PEP reached a 52-week high of $93.19 on Aug 21. The food and beverage giant's share price has been rising ever since it reported strong second-quarter results and increased its earnings outlook for the year on Jul 23.

Pepsi began 2014 on a solid note, beating the Zacks Consensus Estimate for both earnings and revenues in the first two quarters. In fact, the company surpassed the Zacks Consensus Estimate for earnings for twelve straight quarters now.

Moreover, Pepsi raised its earnings guidance for the year based on strong year-to-date performance and optimistic outlook for the rest of the year.

Despite a tough macroeconomic environment, Pepsi delivered an overall healthy performance in 2013 — either achieving or exceeding most of its financial goals. Moreover, we believe the Zacks Rank #2 (Buy) stock is poised well for this year. Shares of Pepsi have surged almost 14% year-to-date.

Second-Quarter Results

Second-quarter adjusted earnings of $1.32 per share increased 1% year over year driven by strong organic revenue gains and solid margins. Organic revenues increased 3.4% as improved beverage volumes, strong global snacks performance and sales gain in developing/emerging market offset a mild slowdown in Europe.

Despite higher commodity costs, core gross margins improved 60 basis points (bps) and operating margins expanded 10 bps as strong pricing, cost reductions and productivity gains offset headwinds from higher operating costs.

Outlook Positive

In 2014, Pepsi expects core constant currency earnings per share to increase 8% year over year, higher than prior expectations of 7%. The target is in line with management's long-term goal of high single-digit core constant currency earnings growth.

Organic revenues are expected to grow in the mid-single-digit range, also in line with long-term targets.

We believe that Pepsi should continue with strong momentum in the second half of the year backed by its strong snacks business, robust international growth and aggressive cost savings.

Other Stocks to Consider

Other beverage companies carrying the same Zacks Rank as Pepsi are The WhiteWave Foods Company WWAV, True Drinks Holdings, Inc. (TRUU) and Dr Pepper Snapple Group, Inc. DPS.

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