UBS analyst Sean King raised his rating on Pepsi to 'buy' from 'neutral', while boosting his price target by $25 to $165 per share, following the group's stronger-than-expected first quarter earnings that included a topline of $4.3 billion from its Frito-Lay snacks division.
King argues that snack division investments will boost growth and margins as consumption patterns change in international markets, while a focus on high-profit energy drinks will help its main beverages unit.
"We believe PepsiCo is only at the mid- point of an investment cycle that will yield a sustainable improvement to top and bottom line growth," King said. "While absolute valuation stands near the upper- bound of its historical range, relative valuation remains below its 3-year average discount."
"We believe modest multiple expansion with consistent earnings upside and the opportunity for long-term algorithm improvement should offer 14% upside potential based on our 12-month price target," he added.
PepsiCo shares were marked 1.05% higher in early trading Wednesday to change hands at $147.25 each, a move that still leaves the stock in modest negative territory for the year.
Last week, PepsiCo posted a 13% increase in first quarter profits, to a Street-beating $1.21 per share, on revenues of $14.8 billion.
PepsiCo said revenues at its Frito-Lay division rose 4% from last year to $4.236 billion, while the topline at Quaker Foods jumped 2%. Beverages said were 4.9% higher at $5.074 billion.
Coca-Cola said the current financial year is "off to a good start", but reiterated its previous forecast of organic revenue growth in the "high single-digits" and comparable earnings growth of "high single to low double digits" versus 2021.