Zacks senior consumer goods analyst Steven Ralston, CFA recently upgraded his rating on shares of Pepsi Bottling Group (PBG) from Hold to Buy. To find out the reasons behind this, we looked into his latest report:
"The Pepsi Bottling Group continues to execute well in a difficult soft drink environment. The company has reported solid net revenue per case in the U.S. and European volume growth has been strong. In addition, cost and productivity initiatives are more than offsetting cost pressures from higher raw material prices. The rating on Pepsi Bottling Group has been increased to a Buy.
"Pepsi Bottling's international operations continue to do well, spearheaded by the European operations, especially in Russia and Turkey where strong GDP growth and a growing young growing population support growth. The European territories experienced strong 7% volume growth in 2006 following 8% volume growth in 2005.
"PBG's stock has traded in a wide P/E [price-to-earnings] multiple range of 12 to 27 over the last five years. However, during times of low single-digit volume growth, the P/E range has been between 12 and 19. Given management's expectation of a moderating negative impact from rising commodity costs, the target price is based on a 20 P/E on trailing 12-month earnings; therefore, the target price is $37.50."
Read the analyst report on PBG