PepsiCo Inc (NASDAQ:PEP, ETR:PEP) has announced the acquisition of Poppi, a fast-growing functional soda brand, for $1.95 billion.
The deal, which includes a $300 million anticipated tax benefit, aims to boost Pepsi’s presence in the rapidly expanding modern soda market.
Poppi’s offerings—sodas made with prebiotics, fruit juice, and apple cider vinegar—have driven impressive growth, with the brand’s retail revenue reaching $392 million in the past year.
Poppi complements Pepsi’s strategy to diversify into healthier beverages, analysts at Jefferies noted.
“We think this is an expensive but good deal, and should help refresh the struggling Pepsi-Beverages North America business,” Jefferies wrote.
The acquisition adds to Pepsi’s recent efforts to refresh its portfolio, including previous acquisitions like Siete and Sabra. Under CEO Ramon Laguarta’s leadership, the company has focused on securing high-growth brands to target changing consumer preferences.
High price tag
Despite the strategic fit, Jefferies analysts maintain a Hold rating on PepsiCo’s stock, citing concerns over the high price tag for Poppi, at approximately five times Poppi’s retail sales.
While Poppi’s rapid growth is promising, the financial impact remains unclear, with Jefferies analysts predicting low or breakeven margins for the brand in the short term.
“There is not enough detail yet to know how accretive the deal will be. Our best guess is Poppi earns very low margins, or is breakeven,” analysts wrote.
The acquisition of Poppi signals Pepsi’s continued investment in expanding its better-for-you offerings, despite challenges in its core Pepsi Beverages North America business.
Pepsi’s stock rose 1.6% following the announcement Monday.
Jefferies has a $170 price target for PepsiCo, indicating a potential upside of 14%.