PepsiCo Still Has Pop

11/27/2015 8:01 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Our latest featured recommendation is in the sweet spot right now when it comes to investor sentiment—a company that turns in decent earnings, pays a healthy dividend, and is viewed as a defensive play for volatile markets—asserts Chuck Carlson, editor of DRIP Investor.

In my view, PepsiCo (PEP) still has pop. The company announced third-quarter profits recently and the results didn't disappoint.

Per-share profits of $1.35 beat Wall Street's estimate by $0.09 per share, the fourth consecutive quarter PepsiCo has beaten the consensus profit estimate and the widest percentage beat in those four quarters.

Excluding currency headwinds, revenues grew 7.4%. The firm capped off the report by upping its 2015 earnings per share growth target to 9% from 8%.

PepsiCo has 22 beverage and snack brands that each generates more than $1 billion in estimated annual retail sales. The firm sells its products in more than 200 countries and territories around the world.

Revenue and unit growth have been the major stumbling blocks for the firm. However, PepsiCo seems to be making some headway on these fronts. In the third quarter, every segment showed organic revenue growth.

True, strong currency headwinds impacted final revenue numbers dramatically, but Wall Street seemed pleased to see organic numbers moving in the right direction.

Margin expansion was a bright spot, as the firm has been working hard on productivity improvements. PepsiCo has done a good job of returning cash to shareholders.

The firm is on track to return $9 billion to shareholders in 2015 in the form of $4 billion in dividends and approximately $5 billion in share repurchases.

I see decent upside for these shares. The company seems capable of reaccelerating its growth trajectory, which is something Wall Street has wanted to see for years.

And the yield of nearly 3% should continue to draw interest from yield-starved investors. I have been a long-time owner of PepsiCo stock and continue to like its total-return potential.

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