By Sam Boughedda
Morgan Stanley analysts said in a research note Tuesday that the firm sees clear topline upside at PepsiCo (NASDAQ:PEP) in the third quarter ahead of the company's results.
They have an Overweight rating and a $198 price target on Pepsi. He explained in the note that their belief is supported by accelerating U.S. scanner data in Q3, which is not reflected in forward consensus estimates.
"We are positive on PEP ahead of 3Q results on October 12, with an expected solid Q3 topline and EPS beat, which even with FX pressure, should drive higher net FY EPS guidance," wrote the analysts. "We continue to see high visibility of PEP topline upside in Q3 (our 12.4% organic sales growth forecast is solidly above the 10.1% consensus), driven by strong 12% pricing realization and virtually flat volume. We also are heartened by US scanner data, with PEP three-year sales CAGR (compares vs a pre-COVID period) accelerating to 9.5% in Q3 vs 7.7% in Q2 (and 6.0% in FY2021), showing underlying momentum is building as greater PEP pricing takes hold. "
Morgan Stanley also sees strong, sustained Pepsi pricing power with "low private label penetration in its categories and a benign competitive environment."
"We forecast 3Q EPS of $1.89, above the $1.84 consensus, which looks low given topline upside potential. We expect core constant FX guidance to move up to 9% from 8% with FX moving to -2.5% from -2%, implying a 50 bp net EPS raise. We did lower our PEP FY EPS forecasts on FX recently, but remain above consensus for Q3 and FY23 EPS, unlike peers where we expect 2023 EPS downside in general marking to market unfavorable FX (offset partially by lower costs)," the analysts concluded.
Pepsi shares were up more than 1% Tuesday.