With elevated inflation and the Fed’s hawkish stance on it, the stock market has been under significant pressure this year. The influential head of the New York Fed predicted that the central bank will likely need to raise its policy rate to “somewhat above” 3.5% and maintain it there through the end of 2023.
Amid the current uncertainty, investing in blue-chip stocks might be a wise strategy. Blue chip stocks represent well-known sector leaders capable of maintaining operations even in challenging economic times based on their broader market reach and superior pricing power.
So, shares of blue-chip companies The Coca-Cola Company (KO) and PepsiCo Inc. (PEP), which surpassed earnings expectations in their recently reported results, could be solid additions to one’s portfolio.
The Coca-Cola Company (KO)
KO owns or has licenses for beverage concentrates, finished sparkling soft drink brands, energy drinks, dairy products, and syrups that are sold to fountain retailers like restaurants and convenience stores.
KO’s net revenue increased 12% from the year-ago value to $11.3 billion for the second quarter ended July 31, 2022. The company’s unit sales volume grew 8%. In addition, its sparkling soft drinks and trademark Coca-Cola increased by 8% and 7%, respectively, driven by growth across all geographic operating segments and operating units. The company’s adjusted EPS of $0.70 beat the consensus estimate by 4.7%.
Analysts expect the EPS to increase 6% year-over-year to $2.46 in fiscal 2022. The consensus revenue estimate of $42.13 billion in fiscal 2022 represents a 9% increase from the same period last year. The stock has gained 9.4% over the past year and 18.6% over the past nine months.
KO’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KO is also rated a B grade for Sentiment, Quality, and Stability. Within the A-rated Beverages industry, it is ranked #20 of 34 stocks. To see additional POWR Ratings for Growth, Momentum, and Value for KO, click here.
PepsiCo Inc. (PEP)
PEP produces, markets, sells, and distributes a range of beverages and convenience foods internationally. The business is divided into seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand, and China Region.
Last month, PEP and premium Romanian spring water AQUA Carpatica entered a strategic partnership under which PepsiCo will hold a 20% equity stake in AQUA Carpatica. Following the agreement, PepsiCo will be granted permission to market and sell spring water in Poland and Romania, with the potential to expand into additional markets, including the US.
For the second quarter ended June 11, 2022, PEP’s net revenue increased 5.2% from the year-ago value to $20.23 billion. Its operating income came in at $2.07 billion. The company reported a net income of $1.43 billion. In addition, PEP’s EPS of $1.86 beat the consensus estimate by 7.1%.
PEP’s EPS is expected to grow at the rate of 7.9% per annum over the next five years. The consensus revenue estimate of $83.57 billion for fiscal 2022 represents a 5.2% increase from the same period last year. The stock has gained 9.5% over the past three months and 6.5% over the past six months.
It is no surprise that PEP has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality, Stability, and Sentiment. In the same industry, it is ranked #10.
Beyond the POWR Ratings grades I have just highlighted, you can view PEP’s ratings for Growth, Momentum, and Value.
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KO shares rose $0.01 (+0.02%) in after-hours trading Friday. Year-to-date, KO has gained 4.82%, versus a -16.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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