JP Morgan On PepsiCo: Negative Stock Reaction Expected

JP Morgan has published a research report on PepsiCo PEP after the company reported 4Q EPS in-line with estimates. In the report, JP Morgan writes "PEP reported Q4 comparable EPS of $1.05 vs. our $1.04 estimate which was in line with the Bloomberg consensus. Sales were much stronger than anticipated, with top line +4% versus our number. GM was weaker, and the company spent back the upside as SG&A/sales was up 271 bp yoy, above our +150 bp estimate. Below the line, a lower net interest expense and share count helped slightly vs. our estimate. While fundamentals look strong, the level of reinvestment is higher than expected and 2011 and 2012 numbers will come down. This is mostly expected, but modestly worse than anticipated. The tone on the call will be important; as we expect PEP to position their guidance as pricing in a bad scenario, with the potential for upside if it isn't as dire. If AVP can trade up following their quarter/call, PEP should as well." JP Morgan maintains its Overweight rating on PepsiCo, which closed yesterday at $64.42.