Pepsi (PEP) Stock Bubbles Up Over $100; Breakout Should Stay Fizzy
NEW YORK (TheStreet) -- PepsiCo (PEP) - Get Report broke out to a new 52-week high recently, but it has pulled back to the breakout point, and this could be an opportunity to go long or add to longs on PEP.
For several months and on numerous attempts, PEP could not break par ($100). Recently PEP was able to break above $100, but a pullback developed with the resistance level ($100) becoming the new support level. PEP is above both the 50-day and the 200-day moving average, and the slope of the 50-day is turning up. This looks like a pullback that can be bought.
This longer-term picture of PEP, above, shows both the breakout over $100 and the slow and steady rise for the On-Balance-Volume line. Sometimes you get false breakouts and breakdowns, but this longer-term view suggests that this breakout has further upside.
Separately, TheStreet Ratings team rates PEPSICO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
We rate PEPSICO INC (PEP) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, expanding profit margins and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Beverages industry and the overall market, PEPSICO INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for PEPSICO INC is rather high; currently it is at 58.09%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 3.26% trails the industry average.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 11.4%. Since the same quarter one year prior, revenues slightly dropped by 5.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- PEPSICO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, PEPSICO INC reported lower earnings of $4.27 versus $4.32 in the prior year. This year, the market expects an improvement in earnings ($4.56 versus $4.27).
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: PEP