BofA Securities analysts reduced their price target on PepsiCo (NASDAQ:PEP) to $190 from $210, while maintaining a Buy rating.
The analysts noted that the food and beverage industry continues to face weak demand as of mid-year, even after overcoming the "Snap-Lap" effect, fewer new price increases, and normalized marketing and promotions. This was highlighted by General Mills missing its Q4 North America sales target and delaying volume recovery.
Measured channel data indicates that PepsiCo's snacks and beverages volumes are underperforming. If this trend continues, PepsiCo may have to choose between striving to meet earnings targets or taking a step back to avoid exacerbating issues by cutting costs excessively. While this scenario is less likely for Q2, the probability increases later in the year. Historically, in similar situations (2004, 2012, and 2019), management has preferred to step back to ensure future progress.
The analysts lowered 2024 and 2025 EPS estimates from $8.15/$8.84 to $8.08/$8.54, representing 6% growth each year. This adjustment is driven by reducing the Q2 organic sales forecast to 2.5% and the 2024 estimate from 4.5% to 3.7%. Consequently, the price target was lowered to $190, with the multiple reduced from 24x to 22x. The new price target reflects current market conditions and assumes that multiples will revert to historical relative ranges as sales stabilize. However, the Buy rating is reiterated due to stable long-term earnings power despite the rerated multiples.