Could PepsiCo Raise FY16 EPS Outlook Despite Reporting In-Line Q2 Results?

PepsiCo is expected to release its second quarter numbers on July 7. Jefferies expects EPS $1.29, in line with consensus. The brokerage forecast sales of $15.456 billion, versus Street view of $15.365 billion, and sees about 3.5 percent organic sales growth.

"EMs remain a risk point, most notably Russia and Brazil, which comprise c. 10 percent of mix; however, PEP has below avg. exposure in GB (c. 2 percent vs. 5 percent group avg.), which is notable looking ahead post Brexit," analyst Kevin Grundy wrote in a note.

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Meanwhile, PepsiCo's FY16 guidance calls for about 4 percent organic sales growth and expects $4.66 core EPS (vs. the Street $4.72) with 8 percent core growth (conservative vs. 9 percent in FY13–14, and 10 percent in FY15).

"We see ~2–4 pt of potential upside to PEP's guide (i.e. ~1–2 pts from 53rd week, add'l ~1–2 points of upside to PEP's core EPS outlook), ex-a potential ~2 points from FX," Grundy highlighted.

The analyst recalled PepsiCo raised its FY EPS guidance by a point with its second quarter results both last year and the year before. Grundy, who has a Buy rating on the stock, expects EPS of $4.80 on revenue of $63.5 billion for FY16.

At the time of writing, shares of PepsiCo were up 0.91 percent to $106.59. The analyst has a price target of $119 on the stock.