Put A Pep In Your Step With Pepsi: Credit Suisse Initiates At Outperform

Credit Suisse believes that the market has failed to give any credit to PepsiCo, Inc. (NYSE: PEP) for the financial and marketing strength on Frito-Lay franchise. Aside from this, the company did well to rebalance its beverage portfolio in the United States to accelerate noncarbonated beverages.

Analysts Laurent Grandet and Clay Crumbliss argued there is not much difference between Credit Suisse's sales and EPS estimates and those of the Street. The company has been one of the consistent performers in delivering EPS either in-line or above expectations. The analysts also see snacks as adding valuation to the stock. Therefore, the analysts have started PepsiCo with an Outperform rating and a price target of $121.

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In a research note to clients, the brokerage pointed out, "Frito-Lay is a best-in-class snacks business that is seemingly immune to competition with white spaces remaining. Mid-single digit sales growth, operating margins breaching 30 percent, and a staggering 54 percent U.S. market share merits a premium valuation to food peers and we think Frito-Lay can realize its full value even under the PepsiCo umbrella."

Credit Suisse thinks PepsiCo's move to focus on nonalcoholic beverages yields the company a leadership position in some of the growing categories. This tactic compensates for the 2 percent weakness in its carbonated portfolio. Its innovative pipeline also helps its performance.

The brokerage sees the weak spot of low market share at the global level, adding there is enough room for improvement though it would request significant investment.

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