PepsiCo is downgraded at Morgan Stanley with valuation seen as played out
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Morgan Stanley downgraded PepsiCo (NASDAQ:PEP) to an Equal-weight rating on Monday after having the beverage stock slotted at Overweight for several years.
Analyst Dara Mohsenian said the call was relatively straightforward, with PepsiCo's (PEP) share price reflecting the strong Q2 and greater than expected magnitude of the full-year guidance raise. Mohsenian said PepsiCo's relative valuation is now near a modern-day record relative high in comparison to its close peers Coca-Cola (KO) and Keurig Dr Pepper (KDP). Valuation is also said to look relatively high in comparison to a broader set of mega-cap consumer packaged goods stocks.
"We see PEP stock upside as limited, with PEP's relative NTM P/E valuation approximately two standard deviations above its historical avg. vs. key peers after nearly 3,000 bps of relative PEP stock outperformance vs. KO/KDP since a pre-COVID beginning of 2020, with most outperformance (nearly 2,000 bps) coming in the LTM."
Mohsenian also noted weakening U.S. scanner data for PepsiCo (PEP) and an overall lack of topline upside for the second half of the year.
Shares of PepsiCo (PEP) fell 1.25% premarket to $185.89 vs. the 52-week trading range of $160.98 to $196.88. The beverage stock trades above its 50-day, 100-day, and 200-day moving averages. The relative strength index is still over 50.
PepsiCo (PEP) has 10 Buy-equivalent ratings from Wall Street analysts vs. 8 Hold-equivalent ratings and 2 Sell-equivalent ratings. The Seeking Alpha Quant Rating on PEP is Hold, due to low marks for valuation and growth. Seeking Alpha analysts also have a consensus Hold rating on PEP.
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