Shares of PepsiCo (PEP 0.40%) were on the rebound today, just one day after the stock fell 3% following its first-quarter earnings report.
While the food and beverage company beat headline revenue and profit estimates, the first-quarter results were marred by a product recall at its Quaker Foods segment, and revenue fell in North America.
But today the stock more than made up for those losses after a bullish note from Morgan Stanley. As a result, the stock was up 3.9% as of 2:42 p.m. ET on Wednesday.
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Morgan Stanley thinks PepsiCo is well priced
While PepsiCo still trades at a premium to the S&P 500, Morgan Stanley called the valuation compressed following the first-quarter results and said it expects a rebound later in the year due to improving trends, strength in international markets, more favorable year-over-year comparisons, and improvements in cost pressures.
The investment bank strongly reiterated its overweight rating on PepsiCo and called it a top pick, with a price target of $190, representing upside of 11% from yesterday's closing price.
Indeed, the company expects its performance to improve later this year, forecasting organic revenue growth of at least 4% and growth in core constant-currency earnings per share of at least 8%.
Is PepsiCo a buy?
Considering its price-to-earnings ratio of 26.8, the stock looks fairly valued for a company with a reputation for reliable growth in a recession-proof industry.
PepsiCo is known for its dependable dividend and steady dividend growth, and its yield is now 3%. That means the stock is sensitive to interest rates as dividend stocks compete with bond yields for investor funding. If interest rates fall, then it could get a boost.
For long-term investors looking for dividend income, PepsiCo looks like a fine stock, but I wouldn't expect any dramatic growth at its current valuation.
