Pepsi Lacks Catalysts; Stifel Cuts To Hold

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PepsiCo, Inc. PEP shares have surged 3 percent since March 15. Stifel’s Mark D. Swartzberg downgraded the rating for the company from Buy to Hold, while removing the price target. The analyst cited valuation and the potential lack of structural or growth-related catalysts as the reasons for the downgrade.

PepsiCo’s shares are trading 2 percent below the prior 12-month price target of $106. Analyst Mark Swartzberg mentioned that outsized sector performance is likely to be driven by M&A/structural change, outsized growth or both.

Swartzberg named Molson Coors Brewing Company TAP and Coca-Cola Enterprises Inc CCE as names that would benefit from M&A/structural change and cited The Coca-Cola Co KO, Anheuser Busch Inbev SA (ADR) BUD and Constellation Brands, Inc. STZ as those that would be benefited by outsized growth or both. All these stocks are rated Buy at Stifel.

“In contrast: PepsiCo’s approximate 4% organic revenue growth is similar to many peers’ growth. PepsiCo management is, if anything, more and more resolved on a OneCo path, making us believe activists face increasing opposition to splitting the company,” Swartzberg wrote.

The analyst added that the OneCo strategy may not lead to improving organic revenue growth, partly since “it comes hand in hand with departure of CEO succession candidates and an increase in the median age of company leaders.”

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Posted In: Analyst ColorLong IdeasDowngradesAnalyst RatingsTrading IdeasMark D. SwartzbergStifel
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