One thing that can often drive up a stock's value is an increase in guidance. And two companies that recently boosted their projections for the year are Novartis (NVS 0.71%) and PepsiCo (PEP 0.27%). Both businesses are showing strong growth despite inflation, and expect more of the same as 2023 rolls on. Are these stocks no-brainer buys given their outlooks, or have investors already been pricing in much of the growth ahead?
1. Novartis
Drugmaker Novartis released its second-quarter earnings earlier this month. The company's Q2 revenue rose by 7% to $13.6 billion. Novartis also reported strong earnings per share (EPS) of $1.11, which was 44% higher than the $0.77 it posted a year earlier.
NYSE: NVS
Key Data Points
As a result of the encouraging performance through the first half of the year, management also bumped up its projections for the year, expecting the company's top line to generate high-single-digit growth, an increase over the mid-single-digit growth it previously projected. Novartis expects this growth to come from both its innovative medicines and Sandoz, its generic and biosimilar business it plans to spin off before the end of this year. Either way, Novartis is expecting a stronger year in 2023.
During the first half of the year, Novartis reported double-digit growth across many of its key products, including top-selling heart drug Entresto, which generated $2.9 billion in sales thus far, 31% more than this time last year.
The only downside for investors is that at 29 times earnings, they're paying a bit of a premium for the healthcare stock right now -- the industry average is around 25. Shares of Novartis are up over 15% this year, and the upside could be limited at this point given its high valuation. But if you're a dividend investor, it could still be worth buying the stock, as it provides an attractive yield at 3.3% -- more than double the S&P 500 average of 1.5%.
2. PepsiCo
Soft drink giant PepsiCo also released its latest earnings numbers this month. The company soundly beat analyst expectations, as revenue of $22.3 billion for the quarter ending June 17 was better than analyst projections of $21.7 billion. And on the bottom line, adjusted earnings per share of $2.09 also beat Wall Street forecasts of $1.96.
NASDAQ: PEP
Key Data Points
Even as the company raised prices, demand remained relatively resilient; volume for food is down just 3%, and in beverages, the decline was a modest 1%. Overall, the company reported 10% revenue growth during the period. And PepsiCo is confident that it can generate organic revenue growth of 10% for the full year, which is higher than the 8% it was previously forecasting. On the bottom line, it projects its core EPS to rise by 12% (when excluding the impact of foreign exchange), which is also higher than its previous forecast of 9%.
Shares of PepsiCo are up 6% this year. The company's pricing power and ability to pass along rising costs to consumers have made it a good investment to hold amid inflation. But at 33 times earnings, it too is starting to become a bit expensive -- rival Coca-Cola trades at a multiple of less than 28. The consensus analyst price target for PepsiCo stock is $192, which is roughly around where it's trading at right now.
With a high price tag and shares of PepsiCo trading near their 52-week highs, this is another stock that may not be a slam-dunk buy despite its increase in guidance. It could still be a good buy for the long haul, however, with an above-average dividend yield of 2.7%, but investors may want to temper their expectations for the short term.
