Pepsico Inc. (PEP) had better than expected earnings and raised their full-year guidance, as sales expect to grow in North America. Pepsico shares had an initially strong daily advance as price rallied to a high of $109.71 before settling back around the $107.76 level.
Pepsico reported a second quarter profit of $1.40 a share, analysts’ consensus eyed a $1.32. Revenue printed at $16.0 billion, in-line with the estimated range of $15.9 billion. The company also affirmed its annual revenue growth at 4%. The 2016 core earnings per share was raised from $4.71 to $4.78.
CEO Indra Nooyi noted, “We are pleased with our results for the third quarter and year to date. We are executing our strategy well and managing what is in our control. Our product portfolio, geographic mix and capability centers are enabling us to deliver balanced revenue and productivity. Based on our year-to-date performance and our outlook for the fourth quarter, we are raising our full-year core constant currency EPS growth objective.”
Price action on the PEP daily chart highlights the surge higher that occurred following the earnings beat. The rally did form a bearish Gartley pattern and if we continue to see selling pressure, price could target the $106 region. Currently price is trading above all three key (200-, 100- and 50-day) SMAs. If bullish momentum returns, we could see priced target the $110 level. Longer-term upside targets remain the $125 zone.
The Trade: Sell Pepsico shares at $108.50, with a stop loss of $109.50 and take profit of $105.50. The risk/reward ratio is 1:3