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'We were wrong about Pepsico', Bernstein admits and upgrades stock

Published Mar 20, 2023 10:16
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By Senad Karaahmetovic 

Bernstein analysts upgraded shares of PepsiCo (NASDAQ:PEP) to Market Perform from Underperform with the price target of $185 per share (up from the prior $172).

The analysts concede that they were wrong about Pepsi stock, given the prior Underperform rating. They note that the company delivered the strongest organic growth across mainstream US staples through the pandemic.

"In 2021, we launched on PEP with an Underperform rating. Simply put, our thesis was that problems at Pepsi beverages were under-appreciated and would persist, leading PEP overall to disappoint. We were wrong, and today we throw in the towel," the analysts wrote in a note.

They are growing more positive about the stock as they also see signs of improvement in beverages.

"We think the G2DSD shift in 2023 could have a meaningfully positive impact on Gatorade share performance, and may be under-appreciated by investors. We also expect ongoing growth of Celsius to help with truck utilization rates, boosting margins. Innovation and merchandising also looks to have improved, benefiting from a closer working alliance with Frito," they added.

Another reason to be positive on PepsiCo is the expectation that pricing power is likely to remain important in 2023. On why they are not upgrading to Outperform, the analysts flag a rich valuation.

"Our revised forecasts are comfortably ahead of consensus for 2023, but valuation - the stock is close to the high-end of the historical range - and our investor conversations suggest this may already be priced-in and we struggle to recommend an overweight position here. We'd look for a tactically better entry point before adding," the analysts concluded.

PEP shares closed at $175.13 on Friday.

'We were wrong about Pepsico', Bernstein admits and upgrades stock
 

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