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Citi Downgrades PepsiCo to Neutral on Persistent North America Weakness
Summary
Citi has lowered its rating on PepsiCo to Neutral from Buy and cut its price target to $145, citing ongoing softness in its key North American divisions and concerns about its full-year guidance.
Citi has downgraded PepsiCo (PEP) to Neutral from Buy and slashed its price target to $145 from $170, citing persistent weakness in the consumer goods giant's North American business that strategic actions have so far failed to reverse. The move reflects growing analyst concern over the company's performance trajectory and its ability to meet financial targets.
North American Headwinds
In a note to investors, Citi analyst Filippo Falorni pointed out that both the PepsiCo Frito-Lay North America (PFNA) and PepsiCo Beverages North America (PBNA) divisions "have remained soft despite PEP’s strategic actions," which include price reductions and innovation.
The downgrade was prompted by second-quarter results that missed market expectations:
- PFNA organic sales declined by 2%, compared to a consensus estimate for flat growth.
- PBNA organic sales grew by 1%, falling short of the 2% growth analysts had anticipated.
AdWhile PepsiCo management identified "gas price-driven budget strains" on consumers as the main cause for the volume shortfalls, Citi expressed skepticism. The firm noted that a potential improvement now seems "more dependent on a broader macro inflection vs. within PEP’s control."
Challenging Outlook
Citi also raised concerns about PepsiCo's full-year guidance. Although management reiterated its 2026 EPS growth target of 5-7%, it guided toward the low end of that range. The analyst note stated this implies a "North America-driven reacceleration" in the fourth quarter that is "increasingly difficult to underwrite with confidence."
Looking further ahead, the firm sees an "increasingly challenging 2027 set-up" for PepsiCo. Factors cited include cycling past recent pricing actions, facing elevated cost inflation, and receiving less benefit from productivity savings. Structural issues, such as the growing adoption of GLP-1 weight-loss drugs, were also flagged as a risk that leaves "limited room for a multiple improvement, even off the current depressed base."