Goldman Sachs Says "Pepsi Next" Modest Positive For Pepsi

Goldman Sachs is out with a research note on Pepsi (NYSE: PEP), as it launches "Pepsi Next" in two test markets. It has a $83 price target, and shares are on the Conviction Buy List.

In a note to clients, Goldman Sachs writes, "It remains to be seen whether Pepsi Next will be a meaningful volume and profit contributor to Pepsi's North American beverage business. Both Pepsi Edge and C2 (mid-calorie cola from KO) failed to generate sizable volume – Pepsi Edge garnered 0.3% of PEP's CSD volume in its peak year and C2 reached 0.6% of KO's CSD volume during its peak year. That said, the news should be a modest positive for investor sentiment and reinforces our view that PEP should continue to see gradual improvement in its NA beverage trends. PEP is stepping up marketing and innovation around its sodas this year as the company continues to put support behind Pepsi Max, has launched a new TV advertising for Diet Pepsi and is partnering up with the new show on Fox “X-Factor” that will begin to air this fall. Separately, Beverage Digest has reported that Pepsi's pricing will be going up 3%-5% mid-summer versus last year and 5%-7% post Labor Day. Coke management reiterated that it plans to raise US pricing 3%-4% in 2H11, resulting in full year pricing of +2%-3%. These pricing actions, along with cost synergies, should offset commodity inflation and higher marketing spending and drive healthy EPS growth for the respective companies this year."

Shares of PEP closed at $69.06 yesterday.