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Credit Suisse Downgrades PepsiCo To Neutral Amid 'Increased Caution' For Entire Sector

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Credit Suisse Downgrades PepsiCo To Neutral Amid 'Increased Caution' For Entire Sector

Analysts at Credit Suisse turned cautious on the entire U.S. beverage industry which prompted a downgrade of PepsiCo, Inc. (NYSE: PEP). The firm's Laurent Grandet downgraded PepsiCo's stock rating from Outperform to Neutral with a price target lowered from $126 to $124.

PepsiCo's success over the years can be attributed to its "total beverage company" portfolio with product lines ranging from carbonated drinks to juices and Gatorade, Grandet commented in the downgrade note. While this did help to boost PepsiCo's stock higher of the year, including an 11 percent gain over the past year, the stock's risk to reward profile is now balanced.

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PepsiCo's total U.S. beverage retail sales trends "deteriorated significantly" since the start of 2017. While many investors assume that this could be attributed towards a trend in healthier consumer habits at the expense of carbonated drinks, the fact is the company's non-carbonated beverage portfolio is in decline. In fact, the NBC's weakness is no longer able to compensate for the greater weakness in the carbonated category.

On top of that, PepsiCo's snack and food division was historically called on to compensate for weakness in the beverage business, the analyst continued. However, it is now a "stretch" to assume that Frito-Lay and other snack categories will "over-earn for an extended period of time."

Finally, the analyst made the following changes to his full-year earnings per share estimates:

  • Fiscal 2017 lowered from $5.15 to $5.13.
  • Fiscal 2018 lowered from $5.56 to $5.45.
  • Fiscal 2019 lowered from $5.95 to $5.82.

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Latest Ratings for PEP

DateFirmActionFromTo
Jul 2020JefferiesMaintainsHold
Apr 2020SunTrust Robinson HumphreyMaintainsHold
Apr 2020CitigroupMaintainsNeutral

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