NEW DIRECTIONAL CALL PLAYS
Pepisco, Inc. - PEP - close: 100.18 change: +0.48
Stop Loss: 94.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 5.0 million
Entry on October -- at $---.--
Listed on October 19, 2015
Time Frame: Exit prior to expiration in January
New Positions: Yes, see below
Soda sales remain the biggest chunk of non-alcoholic drinks. Unfortunately for big soda makers like PEP and KO trends are changing. Consumers are become more health conscious. Sugary soda drink sales have fallen ten years in a row. The good news is that more and more consumers are reaching for bottled water and other drinks perceived to be healthier than traditional colas. Bottled water sales are on pace to surpass soda as the beverage of choice for U.S. consumers soon. (FYI: PEP's bottled water brand is Aquafina)
PEP is a consumer goods giant with a global presence. According to the company, "PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 22 brands that generate more than $1 billion each in estimated annual retail sales."
The stock has been stuck consolidating sideways in the $90-100 trading range for almost a year. It looks like that consolidation may be nearing its end.
Earnings have been better than expected. I looked at the last three quarters. PEP has managed to beat Wall Street's estimates on both the top and the bottom line. Revenues have declined year over year but that is due to negative foreign currency exchange rates that is shaving off about -10% from earnings and revenues. The company says their gross margins and operating margins continue to improve.
PEP's Q3 results showed a +7.4% jump in organic revenues. On a constant currency basis their operating profit was up +12%. Earnings were up +14% from a year ago and their core gross margins surged 120 basis points. They have raised their full year 2015 core constant currency EPS guidance twice this year. Thus far PEP has saved $1 billion in productivity savings and returned $9 billion to shareholders in 2015.
The U.S. market is up the last three weeks in a row but it's relatively flat for the year. Investors are confused with all the different global cross currents, exchange fluctuations, central bank moves, and more. Fund managers are probably tempted to park cash in a huge, liquid big cap like PEP and get paid 2.8% a year with dividends. Why not? PEP is still growing with solid single-digit growth.
Technically PEP looks poised to breakout past major resistance in the $100 area. The point & figure chart is already bullish and forecasting at $120.00 target. Tonight we are listing a trigger to buy calls at $101.00.
Trigger @ $101.00
- Suggested Positions -
Buy the 2016 JAN $100 CALL (PEP160115C100) current ask $2.51
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike