PepsiCo Inc (NASDAQ:PEP) Downgraded To Hold

PepsiCo Inc (NASDAQ:PEP) stock fell 0.51% (As on April 3, 11:11:25 AM UTC-4, Source: Google Finance) after Argus downgraded PepsiCo (PEP) to Hold from Buy saying the company’s price hikes are likely to cause its revenue growth to slow as consumers choose dining out over meals at home. Therefore the adjustment comes amid expectations of slowing revenue growth due to increased prices potentially driving consumers to dine out more and consume fewer meals at home. This trend poses a challenge for PepsiCo, as its customer base largely consists of home consumers of food and beverages.

The analyst from Argus highlighted several factors influencing the downgrade. The rise of weight-loss drugs such as Wegovy and Zepbound may lead to reduced spending on food, which could affect PepsiCo’s sales. Additionally, a growing consumer preference for healthier options is diminishing the demand for traditional salty snacks and sugary drinks, which are staples in PepsiCo’s product lineup.

Despite these concerns, the analyst noted several positive aspects of PepsiCo’s business that could bode well for the company’s future. The firm’s digital operations, efficient distribution network, strong brand portfolio, and improvements in supply chain management were all acknowledged as potential sources of optimism for PepsiCo’s long-term performance.

The downgrade reflects a cautious stance on the near-term outlook for PepsiCo, as the company navigates changing consumer behaviors and market dynamics. It underscores the impact that broader lifestyle and dietary trends can have on companies in the food and beverage industry.

On the other hand, for 2024, the Company now expects at least 4 percent increase in organic revenue and at least 8 percent increase in core constant currency EPS. In addition, the Company expects a core annual effective tax rate of 20 percent; and total cash returns to shareholders of approximately $8.2 billion, comprised of dividends of $7.2 billion and share repurchases of $1.0 billion.

Meanwhile, the company is seeing some geopolitical events around the world that are impacting some of the markets, which might potentially continue in the first half of next year. And then the third element is, the company is seeing a bit of a slowdown in the US, both the food category and the beverage category in the Q4. Part of that is a slowdown due to pricing and disposable income situation. Part of that is also pivoting between in-home consumption and away-from-home consumption that the company is seeing in the business in the US.

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