PepsiCo’s North American Food Unit Faces Challenges: Hold Rating Due to Cost Structure and Growth Concerns

In a report released today, Christopher Carey from Wells Fargo maintained a Hold rating on PepsiCo (PEP – Research Report), with a price target of $140.00.

Christopher Carey has given his Hold rating due to a combination of factors impacting PepsiCo’s North American food unit. The company faces challenges in aligning its cost structure with the current market conditions, which could hinder its ability to meet earnings per share (EPS) expectations. Carey points out that the normalization in the North American food sector is more driven by category trends rather than market share gains, and this situation might persist for several years.
Additionally, PepsiCo’s past investments have not translated into proportional volume growth, leading to concerns about revenue growth in the near future. The company’s operating margins have been under pressure, particularly in the Frito-Lay and Quaker combined unit, due to soft volume and increased costs. Carey suggests that significant cost restructuring, including potential cuts in labor and other expenses, could provide some relief and support EPS growth. However, without decisive action, the stock may continue to face downward pressure, justifying the Hold rating.