PepsiCo Shares Drop After Barclays Downgrade On Snack Business Weakness; Retail Mood Bearish

The research firm cut its rating on the stock to 'equal weight' from 'overweight' and the target to $156 from $168

Shares of PepsiCo Inc (PEP) fell 1.6% on Tuesday after Barclays downgraded and cut its price target on the stock, citing weakness in PepsiCo's snacks business.

The research firm cut its rating on the stock to 'equal weight' from 'overweight' and the target to $156 from $168, The Fly reported.

The downgrade is a reversal of Barclays' position just after PepsiCo's fourth-quarter earnings a month ago, and follows a similar action from Jefferies.

It also follows PepsiCo's deal to acquire prebiotic soda firm Poppi for nearly $2 billion, announced on Monday.

In their recent note, Barclays analysts said their assessment is tied to the company's Frito-Lay North America division, and it could take a few quarters before that business stabilizes.

They said the unit could return to a sustainable 1.5% volume growth long-term, although the near-term outlook is influenced by what the firm considers an uncertain macroeconomic environment.

In Q4, Frito-Lay North America’s volumes fell 3%, partly due to inflation and weak consumer spending on discretionary items.

In the quarter, earnings per share (EPS) came in at $1.96, above consensus estimates of $1.94, while revenue of $27.8 billion marginally missed expectations.

Consumer companies now face a new challenge from President Donald Trump's trade tariffs, which are set to increase prices across the board.

PepsiCo and several other retail companies have reportedly sought an exemption from tariffs on certain ingredients not available from U.S. suppliers, Reuters reported, citing the Consumer Brands Association.

On Stocktwits, the sentiment for PepsiCo held in the 'bearish' territory, although it improved slightly from a day ago.

One user said that PepsiCo should first focus on the snacks division, taking a dig at its recent purchase of Poppi.

Another user noted that probiotic drinks are big in Asia and the move could be beneficial.

Currently, 15 of the 23 analysts covering PepsiCo recommend 'hold', while seven have a 'buy' or higher rating, with an average price target of $163.37, according to Koyfin data.

Shares of the company are at $148.99, down 2.5% year to date.

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