Pepsico Inc. (PEP) reported better than expected earnings and raised their full-year guidance, as sales expect to grow in North America. Pepsico shares had their best daily advance in almost 10-months as price rallied to a high of $109 before settling around the $107.49 level.
Pepsico reported a second quarter profit of $1.35 a share, analysts’ consensus eyed a $1.28 reading. Revenue printed at $1.54 billion, in-line with the estimated range of $1.58-1.60 billion. The company also raised its annual earnings growth from 8% to 9%. The 2016 core earnings per share was also raised from $4.66 to $4.71.
CEO Indra Nooyi noted, “In what continues to be an incredibly volatile global macro environment, we are pleased with our results for the second quarter. While reported net revenue performance was negatively impacted by foreign exchange translation and the deconsolidation of our Venezuelan operations, we delivered balanced volume growth and positive price/mix driven by relentless execution of our commercial agenda and leading to solid organic revenue growth. At the same time, our focus on driving greater efficiency throughout our operations contributed significantly to attractive margin expansion while we continued to invest in our business.”
Price action on the PEP daily chart highlights the gap higher that occurred following the earnings beat. Currently price is strongly above all three key (200-, 100- and 50-day) SMAs. If bullish momentum continues, we could see priced target the $111.23 level initially. It is around that area that price could form a bearish ABCD pattern that could support a round of profit-taking. Longer-term upside targets include the $125 zone. If the financial markets are hit with a wave of risk aversion, major for Pepsico may come from the 200-day SMA which currently trades around the $100.46 level.
The Trade: Buy Pepsico shares at $106.50, with a stop loss of $104.25 and take profit of $111. The risk/reward ratio is 1:2.