Morgan Stanley analysts led by Dara Mohsenian upgraded Pepsi to overweight from equal weight, while they lowered their share-price target to $132 from $145, reflecting the stock’s recent decline.
“[The] defensiveness of the business is underappreciated, with a fairly defensive product portfolio, robust 3.3% dividend yield, and low balance-sheet risk,” the analysts wrote in a report.
The company's multiple of net debt to earnings before interest, taxes, depreciation and amortization is 2, the analysts said. They also see the stock as cheap.
“While Pepsi does have some Covid risk, given [the] potential away-from-home beverage pressure, we see Pepsi's snacks business as likely to benefit from consumers snacking more at home,” they said.
And Pepsi’s more nutritional beverages may benefit from health concerns in light of the coronavirus, the analysts said.
RBC Capital Markets analysts, led by Nik Modi, boosted Pepsi to outperform from sector perform and raised their target price to $153 from $115.
“[The] company will be able to deliver better long-term revenue and profit growth than we had previously assumed,” the analysts wrote in a report.
“Investments behind marketing, digital, infrastructure should start to pay dividends. We believe the recent selloff of PEP provides an attractive entry point for a long-term compounder.”
Since the March 4 close at $142.39 through Friday's close of $103.93, the shares dropped 27%, Pepsi paid out a dividend of 95.5 cents on March 5.
Meanwhile, Morgan Stanley upgraded Colgate-Palmolive to overweight from equal weight and lowered its target to $72 from $76.
Since the stock market’s peak Feb. 19, Colgate's stock has underperformed its large-cap household-product peers, based on coronavirus concern, the analysts wrote in a report.
“We view [that] as unfair given Colgate's defensive business mix,” they said.
At last check, Pepsi shares traded at $109.22, up 5.1%, and Colgate-Palmolive was at $60.19, off 3.1%.