PEP Pre-earnings Analysis

PEP Pre-Earnings Analysis

Chart done on daily timeframe. Investors are nervous about PepsiCo’s earnings this quarter after the company’s products got pulled off the shelves of a large supermarket in Europe due to price increases. During the years of heightened inflation, companies like Coca-Cola and PepsiCo managed to continue posting growth because they raised prices to match inflation. American consumers specifically continued buying products as prices went up, but European customers proved to be more sensitive to price hikes, so much so that Carrefour dropped their product from their 1000+ stores across Europe. The boycott of higher prices in Europe might spill over to other places, and with so much competition in the space, PepsiCo’s leadership need to strategize a way to keep themselves from being removed off more shelves in other stores. 

Luckily, prices seem to be stabilizing so price hikes are not likely to happen anytime soon, but price cuts (if taken) are a double edged sword. If the company announces that they’re looking to lower prices, investors may see that to bring a decline in revenue, despite it being good again the boycotts.  

Like its main competitor Coca-Cola, PepsiCo has managed to continuously post quarterly growth in 2023. Analysts have lower their earnings expectations to 1.72 per shares vs last quarter’s 2.17. This number should be doable for the company, but what’s really going to matter is their 2024 guidance. With all the price changes and troubles in Europe, investors want to see what PepsiCo can bring to the table for year ahead. 

Option chain analysis:

PEP’s option chain for the week of 02.09.2024 currently has an implied volatility reading of about 19.93%, translating to a $5.92 move. So markets are expecting a decently sized move, but no telling which direction yet. The stock has been flat for a few weeks now so these earnings to start the year will likely set the tone for the next quarter.