Pepsi Remains an Attractive, Defensive Stock

Shares of PepsiCo (PEP - Get Report) rose nearly 5% to $112.89 Tuesday after second-quarter profits -- driven by strong food sales -- topped analysts' estimates.

The beverage-and-snack giant had a surprisingly good quarter, reporting an adjusted $1.61 in earnings per share on $16.1 billion in net revenues, fueled by growth in North America, Europe and sub-Saharan Africa for PEP's Frito-Lay business. Frito's volume rose 2%, helping to boost the company's overall operating-income growth to 5%.

Daniel Martins, an analyst of D.M. Martins Research in Tampa, Florida, said he believed that investor concerns about a sales growth drop in Pepsi's North America beverages division of just under 1%.

Based on the company's solid quarterly revenue growth of 2.4%, the company was able to offset that erosion through pricing, he said. Pepsi reported revenue of about $16.1 billion for the quarter above consensus estimates.

Sales in Europe and sub-Saharan Africa grew by 7% and revenue in Latin America rose 3.5 %, based on higher sales in Mexico, Columbia and Argentina.

"Even though there are some headwinds with the sugary and carbonated beverages, the pricing on Frito-Lay and beverage side appears to be keeping their revenue afloat," Martins said, noting Pepsi is the type of "defensive stock" that investors turn to when they are concerned about a downturn because of its pays a respectable dividend. 

Pepsi has a 3.3% dividend yield, compared to a 1.7% consumer goods average.

In Tuesday's earning call, Pepsi CEO Indra Nooyi also cited progress towards "more stable performance" at the company's North American Beverage Division, which is shifting towards healthier drinks.

Like competitors Coca-Cola (KO - Get Report) and Keurig Dr Pepper (KDP) , PepsiCo faces market pressure to put a healthier mix of beverages and other products on store shelves as American preferences shift away from sugary drinks.

"We remain laser-focused on higher-growth categories with appropriate brand investment and robust innovation," Nooyi aid.

Pepsi expects its full year organic growth to at least match the 2017 rate of 2.3 percent, according to the earnings report.

Still, many investors are clear-eyed about the challenges Pepsi faces.

On Tuesday, analysts cited concerns about a drop in North American beverage sales and commodity price increases impacting aluminum as well as transportation costs, and ongoing competition in the domestic market. J.P. Morgan noted that projected sales for Quaker Foods North America and Latin America were below expectations.

Wells Fargo analysts expressed concerns about "mounting commodity pressures," which impact all of Pepsi's business segments and its soft NAB results.

Chuck Carnevale, a registered investment advisor and co-founder of Florida-based F.A.S.T. Graphs,  said he is "long" in Pepsi stock.

Carnevale says Frito-Lay North America and other snack brands give Pepsi a strategic advantage with younger customers over Coke and less diversified beverage companies.

"It is a good buy today; anything over a 3% yield in this market on a blue chip like this is attractive," he said. "Even during the Great Recession, Pepsi's dividend yield was 3 percent."

What's Next for PepsiCo? Access Real Money's Analysis Here:

Jim Cramer: PepsiCo Crushed Analysts' Not-So-Great Expectations

Not Your Grandfather's PepsiCo: How the Company Is Reinventing Itself

Pepsi Provides a Nice Snack Before the Main Course of Earnings Season

How to Play PepsiCo's Rally With an 'Unbalanced Butterfly' Trade

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