Is Pepsi a Good Portfolio Play?

With shares of Pepsi (NYSE:PEP) trading around $85, is PEP an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Pepsi operates as a food and beverage company worldwide. The company is organized into four business units: PepsiCo Americas Foods; PepsiCo Americas Beverages; PepsiCo Europe; and PepsiCo Asia, Middle East, and Africa. It manufactures, markets, and sells a range of salty, convenient, sweet, and grain-based snacks; carbonated and non-carbonated beverages; dairy products; and other foods. Convenience foods are seeing significant demand worldwide, as consumers in growing economies are opting for these products. Pepsi stands to see a continued rise in profits for many years as a leading provider of quick, convenient, inexpensive, and enjoyable products worldwide.

PepsiCo on Thursday reported core earnings per share of 83 cents for the first quarter, an increase of 7 percent. Core constant currency EPS increased 10 percent on organic revenue growth of 4 percent. “We’re pleased with our performance in the first quarter of 2014. PepsiCo delivered mid-single-digit organic revenue growth and double-digit core constant currency earnings per share growth, despite ongoing macroeconomic volatility, political instability and other challenging marketplace  conditions in a number of our key markets,” said Chair and CEO Indra Nooyi.

T = Technicals on the Stock Chart Are Strong

Pepsi stock has been in a range over the last couple of quarters. However, the stock is currently surging higher and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Pepsi is trading above its rising key averages, which signals neutral to bullish price action in the near-term.


Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Pepsi options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Pepsi Options




What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options



June Options



As of Thursday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Pepsi’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Pepsi look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





* As of this writing

Pepsi has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Pepsi’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Pepsi stock done relative to its peers – Coca-Cola (NYSE:KO), Dr Pepper Snapple (NYSE:DPS), and Monster Beverage (NASDAQ:MNST) — and sector?



Dr Pepper Snapple

Monster Beverage


Year-to-Date Return






Pepsi has been a relative performance leader, year-to-date.


Pepsi provides convenient and affordable beverage and food items to consumers in a multitude of countries around the world. The company reported earnings that beat profit expectations. The stock has been in a range over the last couple of quarters but is currently surging higher. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased about earnings announcements. Relative to its peers and sector, Pepsi has been a year-to-date performance leader. Look for Pepsi to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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