PEP - PepsiCo is downgraded at Morgan Stanley with valuation seen as played out

2023-07-17 07:52:13 ET

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.

More on PepsiCo:

• PepsiCo: Q2-23 Earnings Review
• PepsiCo: Don't Look At This 'Affordable Treat' In The Mouth
• PepsiCo Q2 earnings call transcript

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