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Shares of PepsiCo, Inc. (PEP - Analyst Report) reached a 52-week high of $76.33 on Monday, Feb 25, 2013 following solid fourth-quarter results announced earlier this month. The closing price of the cola giant on Feb 25, 2013, was $75.19, representing a solid one-year return of about 22.5% and year-to-date return of about 8.5%. Average volume of shares traded over the last three months stands at approximately 5620K.

Solid Fourth Quarter Performance

PepsiCo reported impressive fourth-quarter results beating the Zacks Consensus Estimate for both revenue and earnings. Moreover, the company provided an impressive outlook for 2013, which was in line with long-term targets and also increased its dividend rate.

We believe that the earnings beat could be driven by negligible currency headwinds and lower taxes in the quarter. Though overall revenues declined due to an extra week in the prior-year quarter and some structural changes, organic revenues grew 5% driven by balanced growth in volume and price.

Impressive performance of the Americas Foods business, especially the Latin America segment boosted sales growth in the quarter. The American foods business gained from successful innovations and increased brand building investments.

Overall, we are encouraged by the company’s strong brand portfolio, its product and geographic diversity and solid cash flow generation. Moreover, PepsiCo has encouraging plans to reinvest excess earnings to support brand building, innovation and improve productivity, especially in the U.S.'

Valuation is Decent

PepsiCo currently trades at a forward price-to-equity (P/E) of 17.09x, a slight discount to the peer group average of 17.35x. On a price-to-sales and price-to-book basis, the stock is trading at a premium to the peer group average. However, on a return on equity (ROE) basis, the stock looks attractive. The stock has a trailing12-month ROE of 29.2%, which is above its peer group average of 18.5%.

PepsiCo carries a Zacks Rank #2 (Buy). Unlike strong results by PepsiCo, rival, The Coca-Cola Company (KO - Analyst Report) reported mixed fourth quarter results; beating on earnings and lagging on sales. Yesterday, another beverage company, Dr Pepper Snapple (DPS - Analyst Report) announced dismal fourth quarter results, missing Zacks’ expectations for both revenue and earnings.

You may consider investing in one of Coca-Cola’s bottling companies, Coca-Cola Hellenic Bottling Company S.A (CCH - Snapshot Report), which carries a Zacks Rank #2 (Buy).

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