JPMorgan recommended buying PepsiCo shares: the company's efficiency is growing

JPMorgan improved its rating on shares of food and beverage producer PepsiCo - from neutral to "Above Market" (Overweight), CNBC reports. This is equivalent to a recommendation to buy the company's securities. The investment bank also raised their target price from $151 to $164, which implies a potential growth of about 9.5% relative to current quotations. In trading on Wednesday, December 10, shares of PepsiCo rose by 3.5% to $149.7.

Investment bank analyst Andrea Teixeira said she expects PepsiCo's earnings growth in 2026 to be in the mid- to high-single digit range (mid- to high-single digit, that's about 5-9%). She cited the company's ambitious efficiency targets and improved revenue performance. "Record levels of performance should allow PepsiCo to both reinvest and grow earnings," she wrote in a note cited by CNBC.

The analyst believes that accelerating innovation and marketing investments, supported by significant efficiency savings, will give the company a Total Shareholder Return (TSR) in 2026 in the high single digits. That's in line with leading industry players, yet PepsiCo's securities are trading at a 15-20% discount, Teixeira noted.

The company will gain additional space on store shelves next year and benefit from initiatives to improve the availability of its products, the JPMorgan analyst said. She called PepsiCo's outlook for 2026 "constructive," especially in the context of growing snack consumption in the US. "Management reported that testing at its three largest retail partners over the past three months showed 'very good metrics' and management is confident that '[sales] volumes [will] come,'" Teixeira said.

Since the beginning of the year, PepsiCo shares have fallen in price by 2.2%. By comparison, the S&P 500 index has added about 17% over the same time.

On December 8, the company said it had reached an agreement with activist investor Elliott Investment Management. It announced a 20% reduction in product mix in the U.S. and price cuts, as well as staff optimization. Elliott had formed a stake in PepsiCo for about $4 billion and had been pushing for changes, pointing to an overly confusing brand portfolio and the company's shrinking share of the beverage market, Bloomberg wrote.

The company is actively updating its product portfolio and cutting costs, the agency notes. PepsiCo has reformed the Lay's brand, including changing the recipe of barbecue-flavored chips, replacing artificial colors with natural ones. The company also introduced a new line of Doritos and Cheetos without synthetic dyes and announced the expansion of its product line to include products with higher protein and fiber content, adapting to changing consumer preferences. To stimulate sales, PepsiCo plans to offer customers smaller packages at lower prices.

The changes are expected to drive 2-4% growth in PepsiCo's organic sales in 2026, the company said in an updated forecast. Analysts' consensus estimate is about 2.7%, Bloomberg notes. Basic earnings per share should increase by 5-7%, PepsiCo suggests.

Investors, however, were not impressed by the company's plans, Barron's believes . PepsiCo quotations remained virtually unchanged on Monday and Tuesday after the announcement of the new strategy.

- "The Elliott engagement has forced the company to implement the strategy with urgency, but the strategy itself hasn't changed in any revolutionary way," TD Cowen analyst Robert Moskow wrote in a note quoted by Bloomberg.

- "There is a lot of work to be done, and it will be difficult to accomplish both tasks - restoring revenue growth and cutting costs - simultaneously," said Jefferies analyst Kaumil Gajrawala. - Accelerating cost cutting while revitalizing growth is an asterisk challenge." Winning back customers lost to high prices will be difficult, he predicts, and a smaller brand portfolio will put pressure on sales in the short term.

- UBS analyst Peter Grom called the announced changes "a step in the right direction". According to him, PepsiCo shares may grow as their current valuation looks low compared to their peers.

Most analysts tracking the company's dynamics look at its prospects with caution. According to MarketWatch, 15 out of 24 analysts recommend holding PepsiCo securities in a portfolio, eight advise buying, and only one advises selling. The Wall Street consensus price target is around $156, up 4.2% from Wednesday's close.

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