PepsiCo Inc (NASDAQ:PEP, ETR:PEP) shares moved up as much 5% in early trading on Tuesday after activist investor Elliott Investment Management disclosed it had acquired a $4 billion equity stake in the beverage and snacks giant.
Elliott said it sees opportunity due to a "highly dislocated valuation” resulting from poor financial results, causing “sharp stock-price underperformance".
"While unfortunate, this disappointing trajectory has created a historic opportunity: With the right mindset and an appropriately ambitious turnaround plan, PepsiCo today represents a rare chance to revitalize a leading global enterprise and unlock significant shareholder value," Elliott Investment Management wrote in its letter PepsiCo’s board of directors.
The letter also stated that changes could open a "path to more than 50% stock-price increase from today's depressed levels."
Elliott wrote that it wants to help the company improve its focus, drive innovation, boost efficiency, and unlock value in its brands.
In July, PepsiCo reported better than expected financial results for its second quarter, with revenue of $22.7 billion and adjusted earnings per share of $2.12.
PepsiCo has invested in zero-sugar and energy drink brands such as Bubly and Celsius in response to a shift in consumer preferences.
And, the company’s snacks division, which includes brands such as Lay's, Doritos, and Cheetos, has been hurt by factors such as higher prices and tariffs.
Pepsi has been cutting costs and trying to improve its profit margins, which included closing two manufacturing plants for its North American food business, CNBC reported.
PepsiCo shares have declined nearly 15% during the past 52 weeks to their current price of about $151.