RBC Capital Picks Pepsi Over Coca Cola Ahead of Q1 Earnings

“We see potential upside to consensus organic revenue growth (+2.6%) and EPS ($1.03)” the analyst wrote on April 27. According to IRI, total PEP March quarter dollar sales recorded a 330 bps acceleration from the December quarter thanks to salty snacks (+9%), bottled water (+21%) and sport drinks (+15%).

And while on-premise sales create a ‘pressure point’ for PepsiCo, the company is significantly less exposed than Coca-Cola, says Modi.

He continued: “We expect strong retail sales trends through March, but June commentary will likely be less constructive given reduced away-from-home consumption and pantry destocking (more so in beverages than snacks).”

Indeed, recent data shows that while PEP bottled water sales and sport drinks declined in the March quarter, snacks went the opposite way, soaring +14.8% in the latest week from +8.7% in March.

Modi only recently upgraded his take on PEP stock from hold to buy, explaining ““After a complete review of our model and assessing PepsiCo’s strategic direction under CEO Ramon Laguarta, we believe the company will be able to deliver better long-term revenue and profit growth than we had previously assumed.”

In particular, he believes that marketing, digital, and infrastructure investment should start to pay dividends. With the stock down 2% year-to-date, his $153 price target indicates 14% upside potential from current levels.

Modi isn’t the only bull in town; PEP scores a Moderate Buy consensus on TipRanks, with 11 recent buy ratings vs 6 hold ratings. Meanwhile the average analyst price target stands at $145 (8% upside potential). (See PEP stock analysis on TipRanks).

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