PepsiCo Up Today on Q2 Earnings

Posted Jul 20th 2010 3:30PM by Steven Mallas
Filed under: Earnings Reports, Coca-Cola (KO), PepsiCo (PEP)

PepsiCo (PEP) is not my favorite stock, but that isn't because I dislike its business prospects. It's not my favorite because I own Coca-Cola (KO). As you can imagine, I have to dislike it at least a little bit.

But I do have to confess to being impressed by the beverage company's stock performance Tuesday afternoon. At the time of this writing, shares were higher by $2.18 to $64.23. That's a 3.5% gain, and for a stock like PepsiCo, it's pretty notable. Especially when earnings growth was, as is oftentimes expected with a blue-chip concern such as this one, rather standard and unexciting.

According to the AP, adjusted income of $1.09 per share beat analyst projections by a penny. Not a big beat, but it's good to see the company keeping up with what Wall Street wants. Shareholders count on solid cash-flow generation from this model, and they need not be disappointed, as the press release indicates. Over $2.4 billion was generated from operations during the six-month period, which was enough to pay for capital spending and dividends.

I was pleasantly surprised by the extent of the buying interest. Seems encouraging for those who like to add stocks like this to a portfolio for purposes of defense against volatility. Going back to that AP article, I guess the market was very pleased by the volume growth in North America. Does this mean shareholders of Coke have something to look forward to in this regard? That would be great, believe me; the domestic territory has been tough for both beverage giants.

The following chart shows that PepsiCo hasn't done much this year in terms of capital appreciation. That's okay. You can hold the stock, reinvest the dividends, and benefit from a collection of great brands. The equity will hopefully continue to remain healthy during whatever remains of this challenging period for the major indexes. I wouldn't initiate a trade with this idea, as I consider it purely for those with longer-term horizons.

Disclosure: I own Coke; positions can change without notice.

Tags: beverage stocks, coca-cola, KO, PEP, pepsico