Investing.com -- Citi analysts see potential downside risk for PepsiCo (NASDAQ:PEP)'s stock ahead of its third-quarter earnings report on October 8, forecasting a miss on organic sales growth (OSG).
As a result of its forecast, the bank has opened up a negative 30-day catalyst watch on the stock.
The bank's estimates predict a +1.5% OSG, well below the consensus expectation of +3.5%, citing weak performance in North America, where scanner trends for beverages and snacks remain soft.
International growth, however, is expected to come in at mid-single digits, according to the note.
"We see risk to PepsiCo's 2024 OSG guidance of ~4% and expect a cut to ~3%," the analysts warned, with Citi modeling OSG at just +2.5% for the year.
On earnings per share (EPS), Citi expects PepsiCo to reiterate its guidance of "at least $8.15" but acknowledges a slight risk of a potential cut of around 100 basis points in a worst-case scenario.
While Citi remains cautious on PepsiCo's Q3 performance, forecasting EPS of $2.28 versus the consensus of $2.30, the firm maintains a Buy rating on the stock over a 12-month period.
"Despite the expected downside in Q3, we believe the most important debate on PepsiCo is the likelihood of a 2025 EPS rebase," Citi analysts said.
They expressed concerns that PepsiCo may need to lower snack pricing to boost demand, posing a further risk to next year's earnings outlook.
However, with the stock trading at about 20 times Citi's below-consensus estimate of $8.50 EPS for 2025, the analysts believe that some of this risk is already reflected in the current valuation. Therefore, despite near-term challenges, Citi retains its Buy rating on a longer-term basis.