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Stock Market News: Tesla Cashes In; Pepsi Gets Challenged

By Dan Caplinger - Feb 13, 2020 at 11:04AM

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Global health worries helped send major benchmarks down Thursday morning.

The stock market posted modest losses on Thursday morning, with most investors attributing the decline to renewed concerns about the COVID-19 outbreak. A new surge in reported cases reawakened fears that the disease might prove to be a longer-lasting problem than initial projections suggested, with consequent impacts on the global economy. As of 11 a.m. EST, the Dow Jones Industrial Average (^DJI 2.68%) was down 185 points to 29,367. The S&P 500 (^GSPC 3.06%) fell 11 points to 3,368, and the Nasdaq Composite (^IXIC 3.34%) lost 38 points to 9,688.

Tesla (TSLA 4.53%) once again made news, this time for a strategic capital move that seemed to have no real impact on its stock price. Meanwhile, PepsiCo (PEP 1.24%) released its latest quarterly financial report, and although its numbers were generally good, there were some potential obstacles ahead for the snack and beverage giant that could pose problems in 2020.

Tesla sells stock

Tesla shares remained volatile on Thursday morning, initially dropping but then recovering their lost ground. The electric vehicle specialist took advantage of the surge in its stock price to secure capital for the foreseeable future.

Tesla Cybertruck in a darkly lit room.

Image source: Tesla.

Tesla announced in a prospectus filed with the U.S. Securities and Exchange Commission that it would sell 2.65 million shares in a secondary stock offering. The size of the offering was designed to raise just over $2 billion in cash, which the company said it intends to use to strengthen its balance sheet and for general corporate purposes.

Typically, stock prices fall on news of a secondary offering, and that's what happened briefly during pre-market trading immediately after the announcement. However, with Tesla, the decision to raise capital to give the automaker more flexibility in managing its outstanding debt makes a lot of sense. Fear of not being able to get needed capital was itself instrumental in sending Tesla stock to its low levels last summer, and so doing the offering now will give the electric-vehicle specialist more breathing room in handling its outstanding debt.

Interestingly, CEO Elon Musk decided to show his continued confidence in Tesla by indicating preliminary interest in buying up to $10 million in stock from the offering. With investors watching every move up and down, Tesla will likely remain in the spotlight for the foreseeable future.

Can PepsiCo pop in 2020?

PepsiCo saw its stock fall a fraction of a percent following its release of its fourth-quarter and full-year results for 2019. The company posted good top-line figures, but its outlook for 2020 left some investors nervous about what the future might bring.

PepsiCo reported that its organic revenue increased 4.3% in the fourth quarter, capping a year in which the company grew its sales by 4.5% organically. Gains were strongest in Pepsi's Asia-Pacific and Africa/Middle East/South Asia segments, while results in the key North American market were more sluggish. From a profit standpoint, PepsiCo's European and Latin American divisions were notably successful in the fourth quarter, while weakness in the Quaker Foods segment sent operating profit there down more than 20% year over year.

Investors did get a good gift in the form of a dividend increase. PepsiCo will now pay $1.0225 per share quarterly, up 7% from the $0.955 per share it used to pay. That marked the 48th straight year that the beverage and snack company has delivered higher dividends to shareholders, making it a premier dividend stock.

Yet some shareholders didn't like PepsiCo's projections for full-year 2020 organic sales growth of just 4%, and adjusted EPS growth of only 7% was also somewhat disappointing. PepsiCo intends to keep returning capital to shareholders, but that by itself won't necessarily result in gains for the stock price.

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Stocks Mentioned

Pepsico, Inc. Stock Quote
Pepsico, Inc.
$166.13 (1.24%) $2.03
Tesla, Inc. Stock Quote
Tesla, Inc.
$737.12 (4.53%) $31.91
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,500.68 (2.68%) $823.32
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,911.74 (3.06%) $116.01
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$11,607.62 (3.34%) $375.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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