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PepsiCo Downgraded to Equal Weight by Morgan Stanley, Upside Limited
Reduced Bullish Outlook
Morgan Stanley analyst Dara Mohsenian has downgraded PepsiCo, citing that many of the reasons to be bullish on the company are already priced into the stock. Despite the downgrade, Mohsenian's price target of $210 implies an upside of 11.6% ahead. In a note to clients, he stated that they typically recommend names where the market is not pricing in certain factors, but in the case of PepsiCo, these factors have already become consensus points among investors.
Limited Upside in the Second Half of the Year
PepsiCo exceeded Wall Street expectations with its second-quarter results, leading to further confidence in the company's performance. However, Mohsenian believes that the high bar set for the second half of the year could limit the stock's growth and potentially push shares down in the short term. The strong quarterly report, along with the full-year guidance raise, has already been factored into the company's valuation, reducing the potential for further upside.
Valuation and Performance Comparison
Mohsenian highlights that PepsiCo's valuation is near a modern-day record relative to its competitor, Coca-Cola, as well as against Keurig Dr Pepper and a broader group of mega-cap consumer packaged goods stocks. He also notes that PepsiCo has outperformed these competitors since the start of the pandemic. This suggests that the stock's current valuation reflects the positive news and investor expectations.
"Hot Take": How the PepsiCo Downgrade Could Impact New Businesses
The recent downgrade of PepsiCo by Morgan Stanley, highlighting limited upside potential, could provide valuable insights for new businesses in a similar industry. While the downgrade specifically pertains to PepsiCo's stock and its valuation relative to competitors, the underlying factors and considerations can be relevant for entrepreneurs and startups looking to enter the consumer packaged goods market.
One key takeaway is the importance of managing investor expectations. PepsiCo's strong performance and high expectations for the second half of the year were already factored into the stock's valuation, leaving limited room for further upside. This emphasizes the need for new businesses to set realistic and achievable goals, avoiding overhyping their potential. By maintaining a transparent approach and aligning projections with market realities, entrepreneurs can avoid the pitfalls of inflated expectations.
Additionally, the comparison of PepsiCo's valuation against its competitors, such as Coca-Cola and Keurig Dr Pepper, offers insights into market dynamics and positioning. New businesses should study the performance and valuation of established players in their industry to understand market trends and gauge their competitive landscape. This information can assist in developing effective strategies and setting reasonable benchmarks for growth and valuation.
Overall, the PepsiCo downgrade highlights the significance of managing expectations, understanding market dynamics, and setting realistic goals for new businesses. By incorporating these lessons into their business plans, entrepreneurs can navigate the complexities of the market with greater confidence and increase their chances of long-term success.
Article First Published at: https://www.cnbc.com/2023/07/17/morgan-stanley-downgrades-pepsico-after-earnings-says-most-good-news-is-priced-into-the-stock.html