CORPORATESISSUER COMMENT 8 OCTOBER 2015PEPSICO, INC. (PEP)Moodys Senior Unsecured Rating A1Moodys Outlook STABond-Implied Rating Aa3CDS-Implied Rating A1EDF-Implied Rating AaaAs of 10/7/2015ANALYST CONTACTSAllerton G. Smith 212-553-4058 Sr Dir-Sr Research Analyst allerton.smith@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market Signals ReviewPepsiCo, Inc.: Market-Implied Ratings Stable Despite Quarterly Drop in Profits The bond-, CDS- and EDF'-implied ratings for Pepsi have shown both strength and stability over the last three months and are the same levels they were 90 days ago (Figure 1). In the interim the bond-implied rating for Pepsi varied between a high of Aa3, where it sits today, and a low of A1. The CDS-implied rating fluctuated between A2 and its current A1. The EDF'-implied rating remained at Aaa.FIGURE 1. PEPSI: MOODYS AND MARKET-IMPLIED RATINGS, 90 DAYS (DAILY DATA)Market participants do not appear to have been deterred by a drop in PepsiCos third-quarter profits of 73% resulting from a $1.36 billion Venezuelan impairment charge and a 5.2% drop in revenues, announced on October 6. All three current market-implied ratings match theirMOODY'S ANALYTICS CORPORATES2 8 OCTOBER 2015 MARKET SIGNALS REVIEW: PEPSICO, INC.: MARKET-IMPLIED RATINGS STABLE DESPITE QUARTERLY DROP IN PROFITSbest levels seen over the last 90 days. Offsetting the revenue drop were strong US beverage and snacks sales.According to our ratings gap-conditioned transition matrices, companies rated A1 with a bond-implied rating of A1 outperformed the broad market 19% of the time over the following 12 months, matched the markets performance 9% of the time, and underperformed the broad market 72% of the time.Readers will recall that when a market-implied rating falls, the underlying securities have underperformed the broad market,...
