After the company outlined its plan to enhance shareholder value following discussions with Elliott Investment Management, J.P. Morgan upgraded PepsiCo (PEP) to Overweight from Neutral amid expectations that an accelerated agenda of innovation and increased spending on marketing should position the beverage giant to deliver high-single digit shareholder return next year.
“We think 2026 guidance is constructive,” J.P. Morgan’s Andrea Teixeira writes in her note to clients on Wednesday, adding that there were little surprises in the company’s stated strategic priorities given it largely builds on actions and initiatives that PepsiCo (PEP) was already undertaking.
“We think more aggressive productivity targets coupled with improving top-line, partially offset by some below the line items, sets PepsiCo (PEP) up well to deliver mid-single digit-high-single digit percentage growth in 2026,” Teixeira says adding that the buyside bar is relatively low given the stock’s recent underperformance.
Additionally, Teixeira raised PepsiCo’s (PEP) price target to $164 price target (up 8% from the prior target and 14% upside to Tuesday’s closing price) based on a 2027 EPS estimate of $9.11 and EV/EBITDA assumption of 12.8x, which is PepsiCo’s (PEP) 1-year historical average.
Regarding the bottling operations, Teixeira thinks PepsiCo (PEP) might be open to a “market by market approach” given that a full refranchising of the business is “not under consideration,” according to CEO Ramon Laguarta, as it will not “improve marketplace performance nor maximize shareholder value.”
Instead, Teixeira believes the company can continue assessing its bottling operations and could eventually choose to take a market-by-market approach to refranchising if there are capable operators interested, which she believes there are.