PepsiCo Downgraded by Deutsche Bank on Doubts Over North American Recovery

Deutsche Bank has downgraded its rating for PepsiCo (PEP) to Hold from a previous Buy, citing diminishing confidence in the company's ability to stage a lasting recovery in its critical North American market. The bank also lowered its price target on the stock to $138 from $155, according to a note to investors released Monday.

Turnaround Efforts Falter

In the note, Deutsche Bank analyst Steve Powers stated that PepsiCo's numerous turnaround initiatives have produced only "mixed or short-lived benefits." These efforts have included price adjustments, new product launches, brand refreshes, and cost-saving measures.

Powers wrote that both the food and beverage divisions in North America continue to struggle with improving sales, market share, and profitability on a sustainable basis. "Successive interventions and refinements suggest the underlying problems are more difficult to solve than management (or we) initially understood," the analyst explained.

Post-Pandemic Mismatch

The bank identified a disconnect between PepsiCo's cost structure and the current consumer landscape. Some of the company's challenges date back to the pandemic, when significant price increases on snacks alienated some customers. During that period, the company also invested heavily in capacity and staffing based on higher growth expectations.

Ad

"Today, therefore, PEP appears caught between a cost structure built for higher growth and a consumer environment that remains structurally softer than expected," Powers wrote. This leaves the company facing persistent headwinds from soft demand and elevated costs.

Revised Estimates and Outlook

Reflecting this more cautious view, Deutsche Bank trimmed its earnings per share (EPS) estimates for PepsiCo. The bank's 2026 EPS forecast was slightly reduced to $8.55 from $8.58, while its 2027 estimate saw a more significant cut to $8.61 from $8.88, placing it below the consensus forecast of $8.97.

While acknowledging that PepsiCo's valuation is "relatively undemanding," the bank concluded that this alone is not enough to maintain a Buy rating. Powers cited several factors justifying the downgrade:

• Limited evidence that the North American recovery is gaining durable traction
• Downside risk to consensus earnings estimates
• A lack of clear catalysts for improvement
• Growing risks to momentum in overseas markets