PepsiCo Among Companies Expected to Perform Well Despite COVID-19

New York analyst offers outlook for beverage companies
Photograph: Shutterstock

NEW YORK — PepsiCo is among the companies expected to perform well despite the coronavirus outbreak, according to Nik Modi, an analyst with RBC Capital Markets, New York.

Modi said he expected PepsiCo's stock to outperform and raised its target stock price from $115 to $153.

“We expect [earnings per share] power to be consistent (slightly benefiting) from COVID-19 as consumers stock up and likely consume PepsiCo’s products over the coming quarters,” Modi said in a March 23 RBC report, which also included research from Steven Shemesh, assistant vice president of equity research, and Mehra Romezi, equity research associate. “We also believe recent investments in capabilities, infrastructure, IT and recent acquisitions could support a slightly higher growth rate than we were previously assuming.”

The Purchase, N.Y.-based snack and beverage company generated more than $67 billion in net revenue in 2019. Its brands include Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo recently announced it would hire 6,000 front-line employees and provide enhanced benefits to U.S. employees during the coronavirus outbreak.

Modi discussed PepsiCo’s rating during RBC Capital Markets' “The COVID-19 Reset: Assessing Implications for Consumer Staples” report.

The Boston Beer Co.’s rating was also upgraded to outperform, partially due to the Boston-based company's Truly Hard Seltzer. 

“We expect top line to remain strong due to ongoing growth for Truly (which has outperformed well despite new product entrants),” Modi said in the report. “However, we are trimming our [earnings per share] estimates to account for gross margin pressure due to capacity constraints. We note that the tremendous growth in Truly is making Boston Beer exposed to the on-premise channel.”

New releases in the hard seltzer category may be pushed back due to the coronavirus outbreak, Modi said, giving less competition to Truly and other established hard seltzers. Truly could also be “recession resilient” because it caters to people with higher income levels than the average beer drinker, he said.

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