Does Pepsi Support All-Time Highs?

With shares of Pepsi (NYSE:PEP) trading around $83 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.

T = Technicals on the Stock Chart are Strong

Pepsi stock has seen a consistent uptrend over the last several years as positive catalysts have propelled the stock higher. The stock is now trading at all-time high prices and looks poised to continue higher. 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 signal neutral to bullish price action in the near-term.

PEP

(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.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Pepsi Options

15.89%

26%

23%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of today, there is an 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 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 Mixed 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?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-2.82%

18.81%

-3.20%

-19.66%

Revenue Growth (Y-O-Y)

1.23%

-1.01%

-5.29%

-2.19%

Earnings Reaction

3.04%

1.09%

-0.28%

2.19%

Pepsi has seen mixed earnings and revenue figures over the last four quarters. From these figures, the markets have generally 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), Mondelez International (NASDAQ:MDLZ), and sector?

Pepsi

Coca-Cola

Dr. Pepper Snapple

Mondelez International

Sector

Year-to-Date Return

21.76%

17.77%

12.00%

23.40%

17.50%

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

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Conclusion

Pepsi provides convenient and affordable food and beverage items to consumers in a multitude of countries around the world. The stock has been a great performer for investors as it is now trading at all-time high prices. Earnings and revenue figures have sent mixed signals, but regardless, investors have been pleased with what they’ve heard during earnings announcements. Relative to its peers and sector, Pepsi has been a year-to-date performance leader. Look for Pepsi to OUTPERFORM.

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