PepsiCo, Inc. (PEP) stock is trading higher by nearly 3% in Monday's pre-market session after the company beat profit estimates of $1.25 per share by $0.07 on $15.95 billion in second quarter 2020 revenue. Revenue also beat expectations despite a 2.1% year-over-year decline, highlighting a challenging business environment. The company declined to provide fiscal year guidance due to heightened uncertainty as a result of the COVID-19 pandemic.
The snack and beverage giant is well positioned in a recession-resistant industry that has gotten a lot of attention so far in 2020. It also pays a healthy 3.05% forward dividend yield in a bond market environment that is struggling to keep interest rates above zero. Third, and most importantly, PepsiCo is "best in class" compared to major peers that include Dow component The Coca-Cola Company (KO), with Pepsi routinely beating estimates while posting an endless string of new highs into February 2020.
Wall Street Consensus
Wall Street consensus is surprisingly mixed, with a "Moderate Buy" rating assembled from six "Buy" and six "Hold" recommendations. No analysts are recommending that shareholders sell their positions at this time. PepsiCo's reputation as a safe haven may be undermining its rankings because the denizens of lower Manhattan have been pounding the tables, telling clients to scoop up growth stocks pummeled in the first quarter rather than load up on income plays.
Despite Wall Street's hesitation, PepsiCo stock has held firm in the upper half of the first quarter trading range, oscillating back and forth across the narrowly aligned 50- and 200-day exponential moving averages (EMAs). This pattern could now provide a stable platform for a buying impulse that tests February's all-time high at $147.20. Accumulation readings have already lifted to new highs, generating a strong tailwind that predicts price will soon follow.
PepsiCo Long-Term Chart (1987 – 2020)
The stock recovered quickly from the 1987 crash, posting new highs yearly into the 1993 peak at a split-adjusted $21.82. It broke out once again in 1995 and continued its persistent upward trajectory into 1998, stalling at $44.81. Price action ignored the 2000 to 2002 bear market, highlighting the company's safe haven status, and hit new highs within a narrow rising channel between 2001 and the 2008 top at $79.79.
A decline through the economic collapse carved an Elliott five-wave pattern that came to rest at a six-year low in the $40s in March 2009, giving way to a recovery wave that took more than five years to complete a round trip into the 2008 high. A breakout in the second quarter of 2013 restored the stock's leadership status, carving a rising channel interrupted by 2015 and 2018 downdrafts. It recovered quickly after both selloffs and traded back to channel resistance.
PepsiCo Short-Term Chart (2019 – 2020)
A February 2020 channel breakout failed quickly, yielding a pandemic-driven decline that ended at a 21-month low near $100. The strong bounce into the second quarter stalled in April after reaching the .786 Fibonacci selloff retracement level, marking the highest high in the past three months. Price action since that time has carved a shallow bull flag pattern that predicts a follow-through rally that reaches 2020 resistance.
The stock is trading near $138.50 ahead of Monday's opening bell, above the .786 Fibonacci selloff retracement level. That price will also signal a flag breakout if it holds into the regular session, raising the odds for a momentum-fueled impulse targeting the February high, which has narrowly aligned with long-term channel resistance. The on-balance volume (OBV) accumulation-distribution indicator has already lifted to a new high, indicating that an initial breakout attempt could generate a sustained uptrend.
The Bottom Line
PepsiCo is trading higher after beating top- and bottom-line estimates, and the stock could now test February's all-time high.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.