Morgan Stanley downgrades PepsiCo after earnings, says most good news is priced into the stock
Many of the reasons to be bullish on PepsiCo are already priced into the stock, Morgan Stanley warned. Analyst Dara Mohsenian downgraded the food and beverage giant to equal weight from overweight. Still, his $210 price target implies shares have an upside of 11.6% ahead. "We typically like recommending names where we can point to discrete points the market is not pricing in," he said in a note to clients. "At Pepsi, after another strong result in Q2, our prior OW call that the market was not focusing enough on snacks segment strength relative to market worries over beverage share, that Pepsi had much stronger relative pricing power vs. peers, the potential for nearterm GM upside, and a longer-term multiyear call that a re-emphasized focus on topline growth under CEO Laguarta (appointed in 2018) would pay off … are now consensus points." Shares took a leg down in Monday's premarket, shedding nearly 1%. The company beat Wall Street expectations on both lines when reporting second-quarter results last week. After the strong earnings report, Mohsenian said further upside to the company's topline compared with consensus estimates is now more limited in the second half of the year. The high bar for the second half of the year could limit the stock and push shares down in the short term, he said. Mohsenian called the downgrade "relatively straightforward" after a multiyear overweight call. Pepsi's valuation has now accounted for the strong quarterly report, full-year guidance raise and potential upsides ahead. That makes upside for shares more limited with investors anticipating all this good news ahead, he said. Not only is that valuation elevated, Mohsenian said it's near a modern-day record relative to competitor Coca-Cola . The same is true when comparing its valuation against Keurig Dr Pepper or a broader group of mega-cap consumer packaged goods stocks. In the same vein, he noted the stock has outperformed these competitors when looking back to the start of the Covid-19 pandemic. PEP KDP,KO 5Y mountain PepsiCo vs. Coca-Cola and Keurig Dr Pepper — CNBC's Michael Bloom contributed to this report.