Since TheStreet Ratings upgraded shares of PepsiCo (PEP)  to Buy from Hold on July 9, 2018, the shares have gained 9.4% in value.

Pepsi and other stocks rated at Buy by TheStreet Ratings are expected to have the opportunity to produce a total return of more than 10% over the next 12 months.

If you prefer exchange-traded funds to holding individual stocks, you may want to consider funds with a large percentage of holdings concentrated in PepsiCo. The top three funds with the highest concentration of PepsiCo stock are all rated at Hold, including: Consumer Staples Select Sector SPDR (XLP) rated at C- with 8.3% concentration, Vanguard Consumer Staples ETF (VDC) at C- with 7.2%, and iShares US Consumer Goods ETF (IYK) at C+ with 6.7%. Schwab US Dividend Equity ETF (SCHD) with a grade of B+ and 3.5% in PepsiCo, and Vanguard Div Appreciation ETF (VIG) rated B+ with 3.2% concentration, are the top Buy rated funds with more than 3% holdings in PepsiCo shares.

Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate PEPSICO INC as a Buy with a ratings score of A-. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings goes as follows:

  • PEP's revenue growth has slightly outpaced the industry average of 6.8%. Since the same quarter one year prior, revenues slightly increased by 2.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for PEPSICO INC is rather high; currently it is at 58.43%. Regardless of PEP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 11.31% trails the industry average.
  • PEPSICO INC's earnings per share declined by 12.3% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, PEPSICO INC reported lower earnings of $3.36 versus $4.36 in the prior year. This year, the market expects an improvement in earnings ($5.70 versus $3.36).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness 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.
  • Net operating cash flow has declined marginally to $2,396.00 million or 1.80% when compared to the same quarter last year. Despite a decrease in cash flow of 1.80%, PEPSICO INC is in line with the industry average cash flow growth rate of -9.96%.
  • You can view the full analysis from the report here: PEP

-- Reported by Kevin Baker in Palm Beach Gardens, FL

Pepsi is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells PEP? Learn more now.

Disclosure: Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet, Inc. or any of its contributors.

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