The food and beverage giant, PepsiCo (PEP, Financial), is slated to report its third quarter earnings on October 9, and investors are yet to decide whether they should be holding the stock after the quarterly results are out. Analysts are upbeat on the results which will be announced in two days, but nobody is expecting anything exceptional from the third quarter results. Though the shares are trading at the 52-week high, which indicates that investors’ are highly bullish on the stock, the question does arise whether investors’ want to hold the stock in the long term. Let us check what analysts are thinking and look into PepsiCo’s financial playbook to derive the answer.
Analysts remain confident on the returns
For the quarter, analysts are expecting the company to report revenue of $17.13 billion, which would be a 1% increase in sales over the $16.91 billion management reported the same quarter last year. Analysts believe that sales would be driven mainly by higher revenue coming from businesses such as Frito Lay North America, Latin American Foods and Europe segments.
With respect to the earnings the picture is on the better side, with expectations of $1.29 per share, up from $1.24 per share reported in the third quarter last year.
PepsiCo remains a strong hold
The company has set a record in the past few years. Between 2009 and 2013, the revenue from the business lines has jumped from $43.23 billion in 2009 to $66.42 billion in 2013. According to the annual reports, such a record jump of 54% was mainly due to higher revenue from all the six operating segments, with the greatest growth witnessed in its PepsiCo America’s beverages and Europe segments.
Also on the profitability side, the net income has risen 13% from $5.95 billion to $6.74 billion in the five-year period between 2009 and 2013. Despite increase in sales, the operating costs have also stemmed up primarily from its selling, general and administrative expenses which have increased from 34.8% in 2009 to 38.2% by 2013.
Based on the data, it can be concluded that PepsiCo’s earnings have not increased at a rapid pace, when compared to its sales within the five-year term. In fact, due to soaring costs, the profits have suffered a bit. In truth, for a company like PepsiCo, the long-term growth would be rather decent irrespective of the opinion given by analysts closely monitoring the stock.
With shares trading on the high, investors could expect at least decent returns, over the next decade.
Final take
Though the third quarter will give better understanding on whether to hold the stock in the long term, it does hold a lot of promise for the investors who are interested to hold the stock after going through the company’s financial performance which has been truly impressive. So, the investors can remain invested and wait for the results to be out to take the ultimate call.
