Pass the Chips. It’s Party Time at Pepsi

Jacqueline Doherty, Barron's
Mar 20, 2010

PEPSICO SHARES HAVE BEGUN TO BUBBLE up in response to bold moves the company has made in recent months to increase shareholder value. Pepsi (ticker: PEP) announced last week that it will raise its dividend 7%, to $1.92 a share, and buy back $15 billion of its shares in the next three years. These moves follow the beverage and snack-food company’s acquisition of its two largest bottlers, which could result in up to $800 million of cost savings, Bill Pecoriello, CEO of ConsumerEdge Research, estimates. Pepsi executives meet today and tomorrow with Wall Street analysts. “What analysts will [hear] is a very strong story about our ability to grow,” says Richard Goodman, the company’s chief financial officer. Pepsi shares have climbed 7%, to around 66.50, since Barron’s laid out the bullish case for the soft-drink company four months ago (”At Pepsi, the Glass is Half Full”, Nov. 30). The stock has kept pace with the strong run in the Standard & Poor’s 500, and has run rings around shares of archrival Coca-Cola (KO), down 4% in the same period. With its rich product portfolio, including brands such as Pepsi, Tropicana, Gatorade, Quaker Oats and Lay’s, Pepsi expects to grow earnings 11% to 13% this year, and by low double digits in the two years thereafter. Ian Jamieson, a portfolio manager at BlackRock who was bullish last fall, still sees the stock hitting 85 as the market anticipates Pepsi’s ability to earn $5 a share in 2012.

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