Deutsche Bank lowers PepsiCo rating as turnaround now more complicated

Investing.com -- Deutsche Bank cut its rating for PepsiCo to Hold from Buy in a note on Monday, cutting its price target to $138 from $155.

The bank told investors that it is less confident in the company's North American recovery.

Analyst Steve Powers said many of PepsiCo's turnaround efforts in North America have produced mixed or short-lived benefits.

These efforts include lower prices, new products, more shelf space, brand refreshes and cost savings. Powers added that both the food and beverage units there are still struggling to improve sales, market share and profitability on a lasting basis.

"Successive interventions and refinements suggest the underlying problems are more difficult to solve than management (or we) initially understood," Powers wrote.

Powers noted that some of PepsiCo's problems date back to the pandemic, when it raised snack prices too much, which pushed some consumers away. It also spent heavily on capacity and staff when growth expectations were higher.

"Today, therefore, PEP appears caught between a cost structure built for higher growth and a consumer environment that remains structurally softer than expected," he wrote.

Deutsche Bank trimmed its 2026 EPS estimate to $8.55 from $8.58, in line with consensus. It made a bigger cut to its 2027 estimate, lowering it to $8.61 from $8.88, below the consensus of $8.97.

“We do not envision a clear path to the improvement embedded in consensus given soft demand, higher costs, renewed needs for higher pricing, continued reinvestment, limited evidence that North American recovery is gaining durable traction, and arguably growing risks to sustained momentum overseas,” said Powers.

‘We acknowledge that valuation is relatively undemanding,” he added. “However, valuation alone does not support maintaining a Buy when consensus estimates face downside, recovery visibility remains limited, and identifiable catalysts are scarce.”

Original Article

You May Also Be Interested In

• Moody’s upgrades TSMC rating to Aa2 on booming AI demand and market dominance
• Unicycive stock jumps as FDA accepts OLC drug resubmission
• INVE Technologies stock surges on $20M share buyback tender