Peltz's Pepsi Exit Wasn't Surprising; Jefferies Reiterates Buy

PepsiCo, Inc. PEP revealed on Friday that activist investor Nelson Peltz's Trian Funds had exited the stock. Jefferies’ Kevin Grundy reiterated a Buy rating for the company, with a price target of $119. The analyst commented that the recent development was “unsurprising”

Well-known activist investor Nelson Peltz's Trian Funds sold its stake of 18.3M shares, comprising 1.3 percent shares outstanding, in PepsiCo. Trian’s exit had been more a matter of when and not if, analyst Kevin Grundy said. He added, “This should come as little surprise to investors given the amicable relationship that emerged between PepsiCo and Mr. Peltz in January 2015 after a far more acrimonious start dating back to late 2011.”

What This Means

Trian had wanted to split PepsiCo’s beverages and snacks business. With Trian’s exit, it would be safe to assume that the splitting up of this business is “off the table for now,” Grundy commented.

Trian remains the fifth largest stakeholder in Mondelez International Inc MDLZ. “Given PEP's publicly stated lack of appetite for larger-scale M&A, coupled with MDLZ's current valuation, we see a PEP/MDLZ deal as unlikely in the near-to-intermediate term,” the analyst wrote.

Grundy believes that PepsiCo is still a core holding, in view of the conservative FY16 EPS guidance, improving NAB profitability, high EPS visibility and shares trading at a discount to beverage business peers.