Why PepsiCo Stock Lost Its Fizz on Friday

PepsiCo (PEP -1.99%) stock was a notable decliner heading into the weekend, suffering a more than 2% drop on a day when the S&P 500 index it’s a part of dipped only marginally. The storied drinks and snacks giant might have done better had it not been for news of a recommendation downgrade from a prominent researcher.

From buy to hold

Well before market open that day, Morgan Stanley analyst Dara Mohsenian made that dramatic change. He now considers PepsiCo shares worthy only of an equalweight (read: hold) designation; previously he rated the company an overweight (buy). He did maintain his price target of $185 per share, however, which isn’t far from the less than $172 at which it most recently closed.

In his research note detailing the change, Mohsenian cited a tame market for PepsiCo products in the company’s native U.S. This, despite the company’s increased spending on marketing efforts such as promotions.

The prognosticator singled out the company’s large Frito-Lay North America (FLNA) as being a unit that’s particularly struggling. “As FLNA organic sales growth weakness has lingered, price interventions/higher spend do not seem to be driving a meaningful snacks topline payback, and beverage market share trends have worsened, along with moderating, albeit still solid international organic sales growth as pricing contribution slows sequentially,” he wrote.

It’s not easy being in this business

PepsiCo is dealing with two tough factors here. The first is that it operates in tough, highly competitive segments stuffed with well-capitalized rivals. Secondly, its rather traditional snack and beverage offerings are somewhat out of fashion given the enhanced health awareness of the American public. In order to get investors and pundits more excited about its prospects, it likely needs a stronger and more viable strategy in the market.