PepsiCo: Good Earnings And Low Beta Outperformer (Technical Analysis) (NASDAQ:PEP)

PepsiCo, Inc. (NASDAQ:PEP) drinks and their snacks are still in demand and they just reported good earnings, even though they had to take a 2% hit because of the higher dollar. It beat on both the top and bottom line and confirmed a good forecast. Future price movement is more interested in the forecast just given, instead of the earnings just reported by looking in the rear view mirror. However, is all this good earnings news already in the price? Is PEP overvalued?

Our SID computer system uses both fundamentals and technicals to calculate our 68 out of 100 Hold signal for PEP. It calculates a total Implied Return of 22%, and that includes the dividend. To make it into our Model Portfolio, we want stocks that are going to trigger our Buy Signal with a score of 80 to 100. If we think this earnings report will take price higher and trigger our Buy Signal, we will add it to our Model Portfolio. Or we can just wait until the Buy Signal is triggered. Let’s look at PEP’s valuation.

If you pull up PEP here on Seeking Alpha and hit the “Valuation” tab, you will see the valuation grade is “D,” so before digging into some of the metrics, we know we have a valuation challenge. I don’t think we have to waste time proving it is overvalued. That explains why we did not see a big pop after a good earnings report. However, let’s dig into some fundamental metrics.

PEP’s non-GAAP forward P/E is 25.60, or 46% higher than the Sector median. However, The Coca-Cola Company (KO) is also 46% higher, just like PEP. As we all know in this bear market, P/Es are coming down and this may be one reason that good earnings don’t get a pop.

Another metric we like to check is forward Price/Sales. PEP’s is 139% higher than the Sector Median. KO is 447% higher, so PEP is better in this comparison.

We like to look at forward Price/Cash Flow. PEP is 50% over the median for the Sector while KO is 74% overvalued compared to the median for the Sector.

Here is how we rate PEP and KO in their Sector based on our proprietary SID Buy/Hold/Sell signal. Using both fundamentals and technicals, we rate KO higher than PEP. We show this list to show the diversity of companies that are in the Sector.

Finally, as we all know, low beta stocks usually drop less than the Index in a bear market and thus are expected to outperform the Index. PEP has a low beta of 0.57 and on the chart below you can see it is outperforming the Index. The PEP:$SPX-indicator, that we circled in red, is in an uptrend indicating outperforming the market.

All the signals on the chart below are positive, except for today’s price action after earnings. Chaikin Money Flow, at the top of the chart is shallow, but in the green. The MACD buy signal is just below that, but giving indications of turning down. The two signals at the bottom of the chart are showing Demand. The bottom signal is overbought and ready to drop.

Today’s price action is a bearish, reversal day after earnings. So it looks like all the good news was already priced in. PEP had a nice run-up going into earnings. PEP is overvalued and that is limiting the response to a good earnings report.

It broke back above the 200-day moving average, as it must if you want portfolio managers to buy. Now price looks like it wants to test that positive breakout by dropping back to the 200-day moving average at $164. Those portfolio managers looking for a low beta outperformer may buy on any weakness, as they always have to do. Or they may buy KO instead.