TD Cowen boosted its outlook on PepsiCo (NASDAQ:PEP) after Elliott Management disclosed a $4 billion activist stake in the food and beverage giant this week.
Analyst Robert Moskow and his team view the arrival of Elliot Management as a positive because it heightens pressure on PepsiCo (NASDAQ:PEP) to act quicker on key initiatives. “Counterintuitively, we believe mgmt will appreciate Elliott’s intention to collaborate rather than antagonize,” reasoned Moskow.
Moskow agrees with Elliott that valuation on PepsiCo (PEP) offers investors and the company a unique opportunity. Notably, Elliott did not recommend splitting up PepsiCo (PEP), which has been consistently rejected in the past. Instead, Elliott called for a review of PBNA’s structure with consideration toward refranchising the bottlers, adjusting Frito-Lay’s cost base to a weaker volume environment, divesting non-core assets, and consolidating SKUs in North America. The Elliott plan also includes a reinvestment of savings to fund long-term growth and increased clarity and accountability on operational and financial targets.
TD Cowen has a Hold rating on PepsiCo (PEP) and a boosted price target of $155, which works out to an 18.0X multiple on the forward 12-month EPS estimate.
Shares of PepsiCo (PEP) traded flat in premarket action at $149.99 on Wednesday after gaining 1.1% on Tuesday.