Key Takeaways
- JPMorgan lowered PepsiCo’s rating to Neutral from Overweight, slashing the price target by 19% to $138.
- Earlier this week, Deutsche Bank reduced PepsiCo to Hold from Buy, marking the second downgrade in just days.
- Shares of PEP declined approximately 1% during premarket trading after JPMorgan’s announcement.
- Wall Street analysts highlight that PepsiCo’s North American business remains sluggish while operational expenses continue escalating.
- The beverage and snack giant will release third-quarter financial results on October 8 before markets open.
Shares of PepsiCo (PEP) declined roughly 1% in early premarket activity Monday following a downgrade from JPMorgan. The stock hovered around $128.50 during the session.
JPMorgan’s Andrea Teixeira downgraded PepsiCo from Overweight to Neutral while simultaneously reducing her price objective by 19%, bringing it down to $138 from a previous $170.
This marks the second analyst downgrade the company has received within the same week. Deutsche Bank shifted its stance to Hold from Buy on Monday, also cutting its target to $138 from $155.
According to Teixeira, PepsiCo’s domestic turnaround efforts have lost momentum even as operating expenses continue their upward trajectory. She highlighted persistent weakness throughout the company’s snack food and broader food segments.
Domestic Business Continues to Struggle
Throughout the current year, Frito-Lay North America has implemented numerous strategic initiatives. These measures encompass product ingredient changes, updated packaging designs, increased advertising expenditure, and competitive pricing adjustments.
However, revenue expansion remains underwhelming. According to Teixeira, the recovery momentum “appears to have stalled” after the opening quarter of 2026.
PepsiCo‘s North American Foods division has demonstrated modest improvement. Nevertheless, Teixeira believes this advancement stems primarily from macroeconomic tailwinds rather than company-specific initiatives.
Global operations have provided a silver lining throughout the year. Beneficial weather patterns and the FIFA World Cup tournament helped boost sales figures.
However, Teixeira cautioned that these benefits are unlikely to recur. When adjusting for these temporary catalysts, she emphasized that North American performance continues disappointing relative to management projections.
Profit Forecasts Reduced
JPMorgan revised its 2027 earnings per share projection downward to $8.86 from $9.05. The firm simultaneously adjusted its 2028 forecast to $9.33 from $9.57.
These revised estimates fall below the Street consensus of $8.95 and $9.47 respectively. Teixeira indicated that PepsiCo will probably depend more heavily on manufacturing efficiencies and expense management to achieve the lower boundary of its 5% to 7% earnings growth target.
Additional transportation expenses are creating headwinds entering the final quarter. Teixeira also reduced her third-quarter organic revenue growth projection to 2.8% from 3.2%.
Her revised Q3 EPS forecast now stands at $2.29, down from $2.31. She attributed the adjustment to weaker domestic consumer patterns and disappointing tracked channel performance.
Teixeira noted that PepsiCo’s current valuation, trading at approximately 15 times earnings, now aligns with industry comparables. She suggested that a valuation expansion could materialize if management demonstrates consistent volume momentum in FLNA.
Deutsche Bank’s Steve Powers conveyed comparable concerns Monday. He expressed reduced confidence in PepsiCo’s North American strategic roadmap, noting that recent turnaround initiatives have yielded inconsistent or temporary outcomes.
PepsiCo will announce third quarter financial performance before trading commences on October 8.
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