Pepsi stock analysis 6 October 2021: Is it time to book profits?
Charts suggest that the correction could deepen in Pepsi
PepsiCo’s fiscal third-quarter results on 5 October were largely above market expectations. CNBC reported that Pepsi's revenue of $20.19bn and adjusted earnings per share (EPS) of $1.79 were ahead of the analysts’ expectations of $19.39bn in sales and $1.73 in EPS, according to Refinitiv.
Pepsi’s North American beverage business reported revenue growth of 7%, down 21% from the previous quarter. As economies gradually reopened around the world, people ventured out to stadiums, college campuses and restaurants. This helped Pepsi record double-digit net-revenue growth for its food-service business. Its out-of-home drink business is now only 10% below pre-pandemic 2019 levels.
The company expects to beat inflation by increasing the price on its products. According to Yahoo Finance, PepsiCo’s vice-chairman and chief financial officer, Hugh Johnston, said: “We really have been investing heavily in our brands and we’ve been investing heavily in innovation. I think we’re providing products that consumers are willing to pay more for.”
For the full year, Pepsi has projected organic revenue growth of 8%, up from its earlier forecast of 6% but short of analysts’ expectations of a 9.5% increase. The company’s 11% growth forecast in constant-currency EPS was also below analysts’ projections of a 13% growth.
The consensus analyst price target for Pepsi, according to Yahoo Finance, is $166.19. Could Pepsi’s stock go up following the results? What do the charts suggest? Read our PEP stock analysis to find out.
Pepsi share price technical analysis: weekly chart
Pepsi’s stock price has been in a steady uptrend, rising from the March 2020 low of $101.36 to an all-time high of $159.35 in August of this year. Thereafter, the stock entered a corrective phase and has since dipped below the 20-week exponential moving average (EMA).
The relative strength index (RSI) is near the midpoint and the 20-week EMA is flattening out, indicating a possible range-bound action for a few weeks.
If the price rebounds off the 50-week simple moving average (SMA), the bulls will again try to push the stock above the all-time high. If they succeed, the uptrend could resume, with the next target objective at $167 and later at $173.
On the contrary, if the price turns down from $159.35, the stock could again drop to $147 and consolidate between these two levels. A break and close below $144 could result in aggressive selling by the traders. The stock may then drop to $139.86.
Pepsi share price technical analysis: daily chart
Pepsi’s stock price had been stuck between $126.46 and $148.50 for several months. This indicated a balance between supply and demand and between the bulls and bears.
This balance tilted in favour of buyers when they pushed the price above the resistance in early July of this year. This move signalled the start of a new uptrend, which has a target objective at $170.54.
However, the bears had other plans. They mounted a strong resistance near $159.35 and have pulled the price down to the breakout level at $148.50. Both moving averages have turned down and the RSI is in negative territory, indicating advantage to the sellers.
If the price breaks and sustains below $148.50, it will suggest that markets rejected the higher levels. The stock could then drift down to $144.37 and then to $138. The deeper the fall, the longer it will take for the stock to resume its uptrend.
Conversely, if the stock rebounds off the current level and breaks above the 50-day SMA, it will suggest that the correction could be over. The stock may then retest the all-time high at $159.35.
Pepsi: stock buy or sell at these levels?
Pepsi’s share price analysis shows the stock has been in a correction for the past few days. If bears pull the price below $148.50, the stock could fall to $144.37 and lower.
Alternatively, if the price rebounds off the current level and rises above the 50-day SMA, it will signal strength and increase the possibility of the resumption of the uptrend.
The views and opinions expressed in the article are those of the author and do not constitute trading advice. Trading and investing involve substantial risks and you should always do your own research or contact your financial adviser before arriving at a decision. Never invest more than you can afford to lose.