PepsiCo (PEP) has come a long way since the Pepsi Challenge vs. Coca-Cola in the 1970s. The company's push beyond drinks has helped Pepsi top its rival's sales, and Pepsi stock is outperforming too.

But is PEP stock a buy right now?

Pepsi Stock News

First, some history.

PepsiCo's roots date back to 1898, when pharmacist Caleb Bradham created Pepsi-Cola and began offering the beverage to his customers. Fast forward to 1965, when Pepsi-Cola CEO Donald Kendall and Frito-Lay CEO Herman Lay envisioned a combined cola and snacks company.

A merger that year between the two companies resulted in PepsiCo, as it's known today. Along the way, it's faced tough competition from Coca-Cola (KO) on the beverage side as the two cola makers vie for brand dominance.

But one key difference: Coca-Cola remains a pure beverage play focusing primarily on drinks and syrups. Purchase, N.Y.-based PepsiCo offers a wide range of products that are now consumed in over 200 countries and territories around the world.

As a result, PepsiCo is in IBD's packaged foods group, while Coca-Cola belongs to the nonalcoholic beverage group.

Last year PepsiCo, whose brands include Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana, did more than $70 billion in net revenue. And that's despite the impact from the coronavirus pandemic, which effectively shut down economies around the world.

Stable Earnings Equals Steady Dividends

Ramon Laguarta has been at the helm since October 2019, when former CEO Indra Nooyi stepped down after 12 years as the food and beverage giant's first female chief.

While Pepsi is not known for strong earnings growth or stock price performance, it stands out for its steady income stream. The food and drinks giant is a member of the S&P 500 Dividend Aristocrats, companies that have increased their dividend payout for 25 or more consecutive years.

On May 4, PepsiCo announced a 5% increase in its quarterly dividend to $1.075 per share, or $4.30 for the full year. That works out to an annualized payout of 2.8%, more than double the S&P 500's average 1.38% yield. The dividend is payable June 30 to shareholders of record at the close of business on June 4.

A steady earnings track record helps keep the dividends coming. Pepsi's five-year Earnings Stability Factor is a 3 out of a range from 1 (most stable) to 99 (least stable).

Tops Wall Street Forecasts

On April 14, the snack foods giant reported first-quarter earnings and sales that beat Wall Street targets.

"We are pleased with our results for the first quarter as we successfully overcame challenges related to difficult year-over-year comparisons, uneven recoveries across many of our international markets and weather-related business disruptions in the U.S.," Chairman and CEO Laguarta said in a statement.

"Our results are indicative of the strength and resilience of our highly dedicated employees, diversified portfolio, agile supply chain and go-to-market systems and strong marketplace execution," he added.

After PepsiCo's quarterly earnings and sales beat, Pepsi stock staged a recent breakout and is trading near all-time highs.

Following the earnings report, UBS upgraded PEP stock to buy from neutral and increased its price target by 25 to 165 a share.

PEP Stock Fundamental Analysis

IBD Stock Checkup assigns PepsiCo a 51 Composite Rating, which gives investors a quick way to assess a stock's key growth traits. That puts it 14th in the 30-stock packaged foods group, which includes Flower Foods (FLO) and J.M. Smucker (JAM).

A 64 Earnings Per Share Rating, part of the overall composite score, reflects a five-year compound earnings growth rate of 4%. Profit dipped 2% in 2019 and was flat last year, after three years of gains. Analysts expect a 10% gain this year, followed by an 8% increase in 2022.

An A SMR Rating (sales + profit margins + return on equity) puts Pepsi in the top 20% of all stocks, based on those metrics. Last year's ROE of 54.5% is well above the desired 17% minimum for growth stocks. Sales grew by single digits the past four years. Wall Street forecasts a 7% increase this year and 4.6% the next.

Pepsi Stock Technical Analysis

On the technical front, Pepsi's 38 Relative Strength Rating means it's trailing 62% of all stocks. Its relative strength line, which compares a stock's performance to the S&P 500, is also well off highs.

After recovering from a 31% drop amid the coronavirus crash last year, PEP stock began shaping a cup base in January. It then added a handle in early April, according to MarketSmith chart analysis. Pepsi climbed past a 145.06 buy point, or 10 cents above the handle's high, last month.

A C- Accumulation/Distribution Rating points to more recent net selling vs. buying by mutual funds. Institutional shareholders include highly regarded funds including Fidelity Contrafund (FCNTX) and Franklin Growth Fund (FKGRX).

Is Pepsi Stock A Buy Right Now?

Pepsi stock has slipped back below a 145.06 buy point of a cup-with-handle base, after weaving above and below the entry. Shares are about 1% away from the buy point. If PEP stock regains the entry, the buy range will top out at 152.31.

A couple of caveats: Volume was weak at the initial breakout, running about 25% below average. It's been weak at later breakout attempts as well. The strongest breakouts tend to occur in volume at least 40% higher than normal.

PEP stock's Composite and RS ratings stand well below the 90 minimum of leading growth stocks. But the company's earnings track record, steady dividends, and diversification in the beverage and snacks market may appeal to some investors.

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