Pepsi gets a boost

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Posted Oct 02 2009, 01:57 PM by Jim Jubak

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Filed under: beverages, Pepsi, Jim Jubak

Jim Jubak Is the stock market entering a more defensive phase with "safe" sectors such as consumer goods set to outperform for a while?

Looks like it to me, given the recent data on which sectors have turned hot and which are cooling off. (See my October 1 post for some of that data.)

And I got more confirmation from the big pop that shares of "safe" PepsiCo (PEP) got this morning after a an upgrade from Deutsche Bank. The upgrade wasn't huge -- the bank raised its 12-month target price to $70 from $66 -- but the stock was up $2.47 a share, or 4.2%, Friday afternoon on what isn't particularly striking news.

To me, that shows that there are a lot of investors out there who, right now, want to lower their risk, but stay in stocks.

I'm going to raise my target price on this evidence that safe consumer stocks are back in favor.

In raising its target price, Deutsche Bank cited its reading of a recent regulatory filing by PepsiCo that implied lower interest expenses and lower depreciation than they had expected as a result of PepsiCo's acquisition of bottlers PepsiAmerica and Pepsi Bottling Group. As a result, the bank raised its 2010 earnings forecast to $4.20, an increase of 4 cents. (See, I told you this wasn't exactly earth-shaking news!)

More importantly, Deutsche Bank also said it thinks there could well be more increases to earnings estimates ahead from a potential tailwind from a weak U.S. dollar and lower costs for key raw materials. With investors getting edgy about prospects for earnings growth in the fourth quarter and in 2010, that's a compelling story.

As of October 2, 2009, I'm raising my target price for PepsiCo to $68 a share by June 2010 from my previous target of $62 by March 2010.

At the time of this writing, Jim Jubak did not own shares of any company mentioned in this post in his personal portfolio.

Related reading:

Coke and Pepsi threatened by "fat tax"

A sugar high from Coke

Coke and Pepsi fear bottled water backlash

Jubak's Picks: Buy PepsiCo