Citi cuts PepsiCo rating as North America weakness shows no signs of abating

Investing.com -- Citi downgraded PepsiCo to Neutral from Buy and cut its price target to $145 from $170 in a note on Friday, citing persistent weakness in the company’s North American business that strategic actions have so far failed to reverse.

Analyst Filippo Falorni told investors that PepsiCo Frito-Lay North America and PepsiCo Beverages North America "have remained soft despite PEP’s strategic actions," including price reductions, innovation and shelf space gains.

Second-quarter North America results missed expectations, with PFNA organic sales growth down 2% against a flat consensus estimate, while PBNA grew 1% versus expectations of 2%.

Falorni stated that management identified "gas price-driven budget strains" as the primary driver behind the volume shortfalls, but expressed concern that "improvement from here is more dependent on a broader macro inflection vs. within PEP’s control."

The downgrade is also attributed to concerns about PepsiCo’s full-year guidance trajectory. Management reiterated its 2026 EPS growth target of 5-7% but pointed to the low end of that range, with the outlook implying "a 4Q’26 North America-driven reacceleration that, in our view, is increasingly difficult to underwrite with confidence given the current trajectory."

Looking further ahead, Citi flagged "an increasingly challenging 2027 set-up" as PepsiCo cycles its North America innovation and pricing actions, faces still-elevated cost inflation and benefits less from large productivity savings.

The firm added that structural concerns, including GLP-1 drug adoption, leave "limited room for a multiple improvement, even off the current depressed base."

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