Macquarie Turns Sour On PepsiCo, Downgrades Stock

Beverage and snack maker PepsiCo, Inc. PEP reported Tuesday its fiscal third-quarter results, which prompted Macquarie to downgrade the stock.

The Analyst

Caroline Levy downgraded PepsiCo from Outperform to Neutral with a price target lowered from $122 to $107.

The Thesis

PepsiCo showed a strong 5-percent organic sales growth although it was partly driven by higher advertising and marketing spend, Levy said in a note. EBIT margins were lower for several factors that are likely to remain a drag moving forward, including higher spending on brand and input cost increases from foreign exchange factors.

Meanwhile, Tuesday marked the final day for Indra Nooyi and her successor CEO Ramon Laguarta's agenda has yet to be communicated to the Street. The new CEO's strategy is unlikely to be presented until the Consumer Analyst Group of New York next February.

While the executive does bring a strong operational expertise from his senior leadership position in PepsiCo's international business, Levy said there are many challenges ahead including competition and fragmentation. Laguarta could look to restructure some of PepsiCo's businesses including buying and/or selling assets or brands.

As such, the near-term uncertainty implies the stock could be range bound and a bullish stance on the stock can no longer be justified.

Price Action

Shares of PepsiCo were trading marginally lower to $106.61 early Friday morning.

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