Pepsi is ‘priced for perfection,’ as earnings beat estimates

PepsiCo’s stock could be about to fizzle, according to one trader.

The food and beverage giant’s fiscal second-quarter earnings report topped analysts’ estimates on Tuesday, showing strong sales and solid growth.

And while the stock only moved slightly on the beat, falling shy of its average 3% post-earnings move, this move can tell investors a lot about the layout for defensive stocks, said Dan Nathan, co-founder and editor of RiskReversal.com.

“The stock is … kind of expensive. I know it’s got nearly a 3% dividend yield, but it’s expected to actually have an [earnings-per-share] decline year over year this year with low-single-digit sales growth, so it’s kind of priced for perfection,” Nathan said Monday on CNBC’s “Options Action.” “This’ll be a really interesting early gauge for a lot of these defensive names, how they report and how the stock reacts [Tuesday].”

The muted reaction in Pepsi’s stock on Tuesday may be a sign that shares are hitting a wall after a practically uninhibited climb over the last decade.

With Pepsi shares declining slightly in early Tuesday trading, hovering around the $132 level, the bears on Pepsi appeared to be winning out.

“I would rather own Coke here, ” Seymour Asset Management investment chief Tim Seymour said in the same “Options Action” segment. “I think there’s more momentum for the brand.”

But some Pepsi bulls, such as Private Advisor Group’s Guy Adami, persisted.

“See, I would take the opposite side, and that’s what makes markets,” he said in response to Seymour on Monday. “Pepsi has beaten, I think, [earnings estimates] 18 of the last 20 quarters or something, revenue 16 of the last 20 quarters. Sets up well into earnings. Valuations are about the same. Let’s not split hairs here. But I think Pepsi has a more diverse brand with Fritos.”

Pepsi shares are up nearly 20% year to date versus Coca-Cola’s 9% gain. Coca-Cola shares declined slightly in early Tuesday trading.

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