RBC maintains Pepsico stock rating at Sector Perform amid activist push

Investing.com - RBC Capital has reiterated its Sector Perform rating on Pepsico (NASDAQ:PEP), a $205 billion market cap beverage giant, with a price target of $146.00 following the announcement of activist involvement in the company. According to InvestingPro data, the stock is currently trading slightly below its Fair Value, with impressive gross profit margins of nearly 55%.

The investment firm noted that given Pepsico’s poor performance over recent quarters, including a 12-month total return of -12.27%, the emergence of activist activity was not surprising. RBC observed that the stock’s minimal movement following the announcement likely resulted from PEP’s price run-up earlier this week, as many investors had anticipated such development. InvestingPro subscribers have access to over 10 additional key insights about PEP’s financial health and growth potential.

According to RBC, the initiatives proposed by Elliott Management "all make sense," with the primary focus being the need to revitalize Pepsico’s top-line growth. The firm specifically highlighted that attention should first be directed toward Frito-Lay North America due to its significant revenue and EBIT contribution, followed by Pepsi Beverages North America.

RBC cautioned that most corrective actions proposed would likely cause earnings per share dilution in the near term, despite their strategic merit.

The firm’s maintained Sector Perform rating comes amid these developments, suggesting a neutral stance on Pepsico’s stock as the company faces pressure to implement changes to improve performance.

In other recent news, PepsiCo has announced a significant move to increase its stake in Celsius Holdings to 11% through a $585 million investment in convertible preferred stock. This investment will also result in Celsius acquiring PepsiCo’s Rockstar Energy brand in the U.S. and Canada, enhancing distribution capabilities for the Alani Nu energy drink. Meanwhile, TD Cowen has raised its price target for PepsiCo to $155, maintaining a Hold rating, following Elliott Investment Management’s disclosure of a $4 billion stake in the company, representing approximately 2% ownership. Piper Sandler has reiterated an Overweight rating with a $160 price target, citing PepsiCo’s focus on innovation despite cautious consumer behavior affecting the Frito-Lay North America segment. UBS also maintained its Buy rating with a $175 price target after discussions with PepsiCo executives, highlighting the company’s growth potential. These developments reflect ongoing strategic investments and analyst confidence in PepsiCo’s market position and future prospects.

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