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Hawk’s Nest

Pepsi (PEP) Call Buyer Catches Strong Run Off Lows

by | Jun 3, 2021

Pepsi (PEP) was a case of several bullish trades hitting a beaten up name and providing a nice reward/risk set-up. PEP shares turned higher immediately after our write-up and have not looked back running 12% higher, a large move for a large cap consumer staples stock.

Our 3/18 write-up:

Pepsi (PEP) on 3/18 with a few bullish positions as 500 October $135 calls were bought for $340K, the April $135 calls traded actively over 5500X, and May $135 calls bought 1250X. PEP also has 2000 April 9th (W) $133 calls in open interest from an unusual buy on 3/9, the June $135 calls with 2,500X accumulation, and still has the 1500 January $105 calls opened on 4/27/20 as a $5M position trading down around 10%. PEP shares have sold off in 2021 and sit just under VWAP off the March 2020 lows and just above the lower edge of this major $129/$139 volume zone. PEP above $134.50 can start to trigger a move higher. The $185B beverage and snacks leader trades 20.5X Earnings, 2.6X Sales and yields a 3%+ dividend. PEP revenues are seen rising 6.8% in 2021 which would be its best in a decade and EPS seen rising 10.2%, also the best in a decade, a name that will benefit from reopenings of venues. PEP’s leading brands including Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Geographically, greater than 60% of revenue comes from North America with the remaining amount coming from international markets. ROCKSTAR, Pioneer Foods, Be & Cherry, SodaStream, and BFY Brands are notable PEP acquisitions the last few years. PEP only commands an approximate 9% share in a $570 billion global LRB addressable market and an approximate 7% share in a $550 billion global macro snacks addressable market. Analysts have an average target of $152 and short interest is low at 0.7% of the float. Goldman rates shares Conviction Buy seeing PEP committed to increasing margins, a strong position in beverage growth opportunities such as energy drinks, and market share. FundSmith a notable top holder with a $1.4B stake and Lindsell Train has a $760M stake as an 11% portfolio weighting. ”