Key Takeaways
- JPMorgan slashed PepsiCo’s rating to Neutral from Overweight while reducing the price target from $170 to $138āa 19% cut.
- Earlier in the week, Deutsche Bank downgraded the stock from Buy to Hold, marking the second negative call in recent days.
- Shares of PEP declined roughly 1% during premarket hours after the JPMorgan announcement.
- Wall Street analysts highlight stagnant North American business trends alongside escalating transportation and operational expenses.
- The company is scheduled to release its third quarter financial results on October 8 before markets open.
Shares of PepsiCo (PEP) declined approximately 1% in premarket activity on Monday after JPMorgan issued a downgrade. Trading activity placed the stock around the $128.50 level.
Andrea Teixeira, an analyst at JPMorgan, moved her recommendation on PepsiCo from Overweight to Neutral. Along with the rating change, she reduced the firm’s price objective by 19%, bringing it down from $170 to $138.
This marks the second time PepsiCo has been downgraded within the same week. Deutsche Bank revised its stance from Buy to Hold on Monday as well, lowering its target price from $155 to $138.
According to Teixeira, the company’s North American business transformation has lost momentum even as operating expenses continue to rise. She emphasized troubling performance patterns in both the salty snacks and broader foods segments.
North American Operations Continue to Underperform
Throughout this year, Frito-Lay North America has implemented multiple strategic changes. The division has experimented with ingredient adjustments, packaging redesigns, increased advertising budgets, and competitive pricing strategies.
However, sales momentum has remained underwhelming. Teixeira noted that the recovery effort “appears to have stalled” after the initial quarter of 2026.
While PepsiCo Foods North America has demonstrated modest gains, Teixeira suggested these improvements seem more connected to general macroeconomic factors than to company-specific initiatives.
The international segment has delivered stronger performance during the year. Positive weather patterns and the FIFA World Cup tournament provided meaningful sales contributions.
However, Teixeira cautioned that these benefits are temporary. When excluding these exceptional circumstances, she indicated that North American performance continues to lag behind management’s projections.
Wall Street Lowers Profit Forecasts
JPMorgan reduced its earnings per share projection for 2027 from $9.05 to $8.86. The firm simultaneously lowered its 2028 forecast from $9.57 to $9.33.
These revised numbers fall beneath the Street’s consensus expectations of $8.95 and $9.47, respectively. Teixeira suggested the company will increasingly depend on manufacturing efficiencies and expense management to achieve the lower end of its 5% to 7% earnings growth target range.
Additional transportation expenses are creating headwinds as the fourth quarter approaches. Teixeira also adjusted her third quarter organic sales growth forecast downward from 3.2% to 2.8%.
Her revised Q3 EPS estimate stands at $2.29, compared to her previous call of $2.31. She attributed the adjustment to weakening North American consumer patterns and softer performance data from tracked retail channels.
Teixeira observed that PepsiCo’s current valuation, trading at approximately 15 times earnings, aligns with industry comparables. She noted that multiple expansion could materialize if management can demonstrate consistent volume growth within Frito-Lay North America.
Steve Powers of Deutsche Bank expressed comparable concerns on Monday. He indicated reduced confidence in PepsiCo’s North American strategic execution, noting that recent turnaround initiatives have delivered inconsistent or temporary outcomes.
The company will announce its third quarter earnings before trading begins on October 8.
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