Jacqueline Doherty, Barron’s
Mar 20, 2010PEPSICO 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.