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PepsiCo Stock: Do Analysts See Upside in 2019?

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Price target revisions since results

PepsiCo (PEP) announced its fourth-quarter results in February. They were in line with analysts’ expectations. PepsiCo’s earnings outlook for 2019 was weak, but investors were pleased with the company’s dividend hike announcement. Some analysts raised their price targets for PepsiCo in February, following the fourth-quarter results, including the following changes.

  • Jefferies: $119 from $105
  • Morgan Stanley: $130 from $125
  • Cowen and Company: $133 from $124
  • BMO: $110 from $109
  • Guggenheim: $113 from $107

On February 19, Macquarie raised its rating for PepsiCo to “outperform” from “neutral” and increased its price target to $126 from $107. On March 7, Credit Suisse initiated coverage of PepsiCo with an “underperform” rating and a price target of $100.

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Efforts to improve business

PepsiCo owns an extensive snack and beverage portfolio that includes 22 billion-dollar brands (such as Lays, Pepsi, Quaker, and Tropicana) that generate over $1 billion in retail sales.

PepsiCo has been focusing on developing snack and beverage products that contain a reduced level of salt, sugar, and saturated fat. As an addition to its portfolio of healthier choices, PepsiCo acquired SodaStream last year for $3.2 billion. SodaStream allows consumers to convert tap water into sparkling water and flavored sparkling water at home.

PepsiCo’s Frito-Lay North America business has been its major strength in recent quarters. The company intends to strengthen this business further and expand the portfolio of healthier, convenient and on-the-go food options.

PepsiCo’s North America Beverages division (its largest based on revenue) is struggling due to weak soda volumes and competition from new entrants. The company intends to improve its North America Beverages business through focused marketing efforts. PepsiCo also aims to attract consumers with innovative products like premium water brand Lifewtr, flavored sparkling water brand Bubly, and Gatorade Zero.

In February, PepsiCo, a dividend aristocrat, announced a 3.0% increase in its annual dividend to $3.82 per share. This was the 47th consecutive year of dividend hikes from PepsiCo.

As of March 28, PepsiCo stock rose 10.3% on a year-to-date basis. Analysts’ average price target of $118.30 indicates a downside potential of about 3.0% in PepsiCo stock.

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