PepsiCo slips after TD Cowen warns the value equation with consumers could be lost

TD Cowen lowered its rating on PepsiCo (NASDAQ:PEP) to Hold on Thursday, after having the food and beverage stock set at Buy.

Analyst Robert Moskow said that while the firm continues to view PepsiCo (PEP) as a top-tier consumer packaged goods company, aggressive pricing in the company’s three biggest U.S. categories is seen as overextending the value equation to consumers and will compromise their near-term pricing power.

“Investors have come to expect PepsiCo to deliver consistent price/mix growth in the U.S. through price-pack architecture, innovation, and category strength. However, pricing in the company’s salty snacks, carbonated beverage, and sports drinks categories is up 41% since 2020 compared to a grocery store average of 25%,” warned Moskow. That imbalance is anticipated to create different challenges. Pricing for salty snacks is expected to turn negative, and the carbonated beverages business is expected to see continued volume pressure from price elasticity.

Moskow lowered the organic growth forecast for PepsiCo to +1.9% in FY24 and +3% in FY25, which falls below management’s algorithm of +4 to +6%. TD Cowen lowered the price target on PepsiCo (PEP) to $183, which works out to a 20.5X multiple on the 12-month forward EPS estimate and indicates just slight upside potential in the near term.

Shares of PepsiCo (PEP) slipped 0.25% in premarket trading on Thursday. The stock is down about 3% over the last six weeks.