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As the tensions caused by COVID-19 die down, PepsiCo is going to be able ease up on virus-related costs, allowing them to allocate its funds to specific sectors. As a result, on Friday, Citi updated coverage on PepsiCo (PEP), upgrading shares to a Buy rating with a price target of $169 (from $148).

Despite PepsiCo having a smaller market capitalization than similar mega caps (namely, KO and PG), PepsiCo has had the most consistent organic sales growth. This was driven by PepsiCo taking the initiative to continually reinvest back into its business. The analysts at Citi stated “And, while it has by far the lowest operating margin, we also think PEP likely has the largest amount of potential to expand its operating margins in the coming years. This means that while PEP’s EPS growth has been lackluster in each of 2019 and 2020 YTD, we think the company is in a position to have its EPS growth accelerate in 2021. To the extent PEP’s EPS growth accelerates as we expect it will, we believe the stock’s relative multiple can expand considerably from current levels.”

As a result, the analysts believe that PepsiCo is in a position to see strong growth and generate operating margin expansion. PepsiCo is currently only producing a ~9% operating margin in its North America Beverage (NAB) sector, down from roughly 14% just a few years ago. Innovation on this front could certainly be accretive to segment operating margins.

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Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.