These Analysts Are Positive On PepsiCo; Preview Earnings

PepsiCo, Inc. PEP is scheduled to announce its first quarter financial results on Thursday, before the market open, and analysts are expecting EPS and revenue year-over-year declines. In a recent research report, analysts at Susquehanna initiated coverage on the stock with a Positive rating and a $123 price target, and provided a preview of the quarterly results.

According to Estmize, Wall Street analysts expect consensus EPS of $0.79 on revenue of 12.188 billion, while the crowd anticipates earnings of $0.81 per share on revenue of $12.34 billion. Both these projections fall below the EPS reported in the same quarter last year ($0.83) and in the latest quarter ($1.12).

For the most part, Susquehanna’s underlying assumptions are in line with guidance and consensus. For the full year of 2015 they model EPS of $4.82; for 2016, EPS of $5.17 (versus consensus of $4.66 and $5.04, respectively). The firm is 1 point below consensus regarding revenue growth for fiscal 2015 to fiscal 2017 (due to FX and what they think “will be continued struggles in NA drinks”), but are 10 to 20 basis points more constructive on EBIT margins.

PepsiCo guided, for 2015:

• “Core EPS growth of 7% ex FX (the base is $4.63)
• Mid-single digit sales growth ex FX (will be helped by higher local inflation in emerging markets)
• Core operating margins up (expects low single digit commodity costs; plans $1Bn in cost savings)
• It assumes 7% FX headwinds to top line and EPS (based on FX rates as of mid-February 2015)
• Tax rate of 25%; lower share count owing to the continued share buybacks
• The company aims to buy back $4.5 billion of stock, more back loaded this year; in total it aims to return $8.5Bn to shareholders in 2015
• Starting with the June payment, DPS has been in creased to an annualized number of $2.81 (+7%); the company (like KO) prides itself in the consecutive increases in DPS (43 years running)”