PepsiCo Inc (NASDAQ:PEP, ETR:PEP) has been downgraded to a ‘Neutral’ rating by analysts at Bank of America citing the company’s prolonged turnaround of Frito-Lay North America as a drag going into a potential recession.
The analysts also lowered their price target to $155 from $185. Shares traded down 1.8% at $144 in the early afternoon on Tuesday.
“While international segments are scaling and making large contributions to sales and profit growth, it's not enough at this point to make up for slower growth at Frito-Lay North America (FLNA),” analysts wrote.
“As a result, we expect limited opportunity for either topline outperformance or for better than low single-digit earnings per share (EPS) growth in 2025 and 2026.”
FLNA volume declines were attributed in part to price increases exceeding wage growth.
Meanwhile, Pepsi Beverages North America continues to see market share losses due to its narrow portfolio and being out-marketed by competitors, the analysts added.
They noted that, despite the challenges, Pepsi has been able to protect earnings with “prudent” profit and loss management stemming from “phenomenal gross margin productivity out of their international markets.”
“As we see it, downside from here is relatively limited, but so is upside to EPS/multiple as we wait out an improvement in the US,” the analysts wrote.
“Though market rotation into Consumer Staples provides some support, we see limited scope for meaningful valuation re-rating until the market regains confidence in sales and profit growth that matches its higher-valued large cap staples peers.”