PepsiCo (PEP) Activist Shareholder Split, Not The Stock - Jefferies

Jefferies analyst, Kevin Grundy, notes that on Friday (5/13) intra-day, the activist investor Nelson Peltz's Trian Funds disclosed that it had sold its stake of 18.3M shares (1.3% shares outstanding) in PepsiCo (NYSE: PEP). This draws to a close its multi-year involvement in the stock. No change to Buy rating or $119 PT.

On Jan. 17, 2015, Mr. Peltz said,"[Trian] support[ed] Indra's [PEP's CEO] commitment to operational excellence, which [had] resulted in improved performance of the company." This was markedly different in tone from July 2014 when Mr. Peltz: (i) "most definitely" wanted to split-up the beverage and snacks businesses; (ii) characterized mgmnt as "stuck in their ways" and that PEP "[was] not being managed well"; and (iii) that a proxy battle was a "possibility". Bill Johnson, former Chairman and CEO of Heinz, and an Advisory Partner of Trian Advisory Partners, was elected to PEP's Board in March 2015.

PEP's bevs biz is trading at 9.5x FY17 EV/EBITDA, or >30% disc. to staples cos. at c. 14x (assuming a 10% prem., or 15.5x, for PEP's higher margin/growth snacks biz). This leaves adequate scope for PEP to trade up, particularly given accelerating FX neutral OI growth (12% in 1Q16 vs. 7% in FY15, 5% in FY14).

For an analyst ratings summary and ratings history on Pepsico click here. For more ratings news on Pepsico click here.

Shares of Pepsico closed at $104.18 yesterday.

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