Shares in PepsiCo (PEP) fizzed over 2% higher in early trading after activist investor Elliott Investment Management disclosed a $4 billion stake in the group.
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In a letter to the board of the beverage and snacks giant, Elliott outlined a major turnaround plan for the business, which it claims could deliver a sparkling more than 50% upside for shareholders.
Pepsi Presents
The presentation – entitled ‘Elliott’s Perspectives on PepsiCo’ – set out in detail how PepsiCo could “re-accelerate growth and boost financial results through greater focus, improved operations, strategic reinvestment and enhanced accountability.”
The activist investor’s plan includes reviewing PepsiCo Beverages North America’s structure and portfolio, realigning PepsiCo Foods North America’s asset base, investing in profitable growth, communicating clear targets, and enhancing oversight and accountability.
Elliott singled out PepsiCo’s North America beverages unit, see above, as an underperformer, saying growth and margins were lagging peers due to strategic missteps, share losses in soda and the introduction of new brands and products that have “strained focus and execution”.
PepsiCo should evaluate a potential re-franchising of its bottling network along the lines of rival Coca-Cola’s, (KO) Elliott said.
Flat Pepsi
PepsiCo has lost its fizz in recent quarters, struggling to win soda drinkers after losing market share to competitors. Its share price has also lagged its peers.
Its food business has also come under pressure. As such, Elliott recommended divesting “non-core and underperforming food assets” to restore profit margins.
“With the right mindset and an appropriately ambitious turnaround plan, PepsiCo today represents a rare chance to revitalize a leading global enterprise and unlock significant shareholder value,” Elliott wrote in its letter.
The company should “defend its core franchises in carbonated soft drinks with incremental marketing and innovation, while selectively expanding in growing categories,” Elliott said.
The $4 billion investment represents one of Elliott’s largest equity positions ever. Its most recent interventions include prompting oil giant BP (BP) to ditch its renewable energy push and return to a fossil fuel focus to drive growth.
Is PEP a Good Stock to Buy Now?
On TipRanks, PEP has a Moderate Buy consensus based on 4 Buy and 9 Hold ratings. Its highest price target is $175. PEP stock’s consensus price target is $156.15, implying a 2.03% upside.
