PepsiCo’s share price: What to expect from Q3 earnings

PepsiCo's [PEP] share price has fizzed to a 31.97% gain since 20 March, its lowest close at the height of the coronavirus pandemic. Back then, PepsiCo’s stock had plummeted as lockdowns around the world affected PepsiCo's drinks business, with particular strain falling on restaurant and convenience store sales.

While second-quarter earnings saw revenues down year-on-year, PepsiCo's share price has proven resilient. The return of customers to pre-lockdown habits has helped boost investor confidence.

Will this trend continue in third-quarter earnings, or is PepsiCo's share price about to go flat?

When do PepsiCo's earnings come out?

1 October

Why PepsiCo's share price could move post-earnings

Easing of lockdown restrictions

PepsiCo saw revenues fall in the second quarter as the pandemic meant fewer people were buying its drinks in stores or at restaurants. However, it still managed to beat analyst expectations, hauling in $15.95bn compared to an expected $15.38bn, thanks to the strength of its food business.

While revenue from its drinks operations fell by 7% compared to the same quarter last year, sales of its Quaker Oats brand grew 23% thanks to more people eating and baking at home.

PepsiCo Chairman and CEO Ramon Laguarta said that business improved later in the quarter as lockdown restrictions eased. If this improvement continues into the third quarter, PepsiCo's share price could see a post-earnings bounce.

Those interested in PepsiCo’s share price prospects should also keep tabs on its e-commerce arm, with the firm launching online offerings snacks.com and PantryShop.com in May.

“Whoever wins in e-commerce now and is able to capture those families that are trying the grocery service for the first time, I think is going to win those families in the future, so we’re investing heavily to try to be the first in that channel,” Laguarta said at the time.

Dividend payout

PepsiCo’s share price got a timely endorsement from Jim Cramer last week as the Mad Money host advised investors to focus on dividend-paying stocks. Along with PepsiCo, Cramer also recommended its big rival Coca-Cola [KO].

"These stocks represent real value. I think you can buy some of them tomorrow and then buy more if they go lower,” Cramer said. “Plus, they have the added advantage of not having any hot money in them, whatsoever, so your fellow shareholders aren’t going to panic and dump the stocks as they go lower.”

In second-quarter earnings, PepsiCo said it expected to pay out $7.5bn in cash returns to shareholders. This would comprise dividends of $5.5bn and share repurchases of $2bn. For the full-year, PepsiCo has an expected forward 3.12% yield. At a time when companies are cutting dividends, this makes a welcome change.

What are analysts expecting for PepsiCo’s share price?

Wall Street expects PepsiCo to bring in earnings of $1.48 per share, down from the $1.56 seen in the same quarter last year. Revenue is forecast to come in at $17.21bn, a slight 0.10% increase on the $17.19bn seen last year.

For the full year, earnings are expected to come in at $5.36 per share, down from the $5.53 a share seen last year. However, revenue is forecast to come in at $67.99bn, a 1.2% increase on the previous year.

So, is an earnings beat on the cards? PepsiCo has beaten analyst expectations in the past four quarters. In the last quarter, earnings came in at $1.32 a share, while Wall Street had predicted $1.25 a share. As ever, though, past performance is no guarantee of future results.

Among the analysts tracking PepsiCo's share price on Yahoo Finance, the stock carries an average $146.59 price target. Hitting this would see a 6.88% upside on its price as of 29 September’s close.

Of the 22 analysts offering recommendations on PepsiCo’s share price, 2 rate the stock a Strong Buy and 10 rate it a Buy; the rest have a Hold rating.