On Wednesday, analysts at Morgan Stanley reiterated their Overweight rating on PepsiCo (PEP) after the beverage company released strong Q3 results.
The analysts indicated that PepsiCo’s stock has underperformed defensive peers because it’s not a true COVID-beneficiary given the weakness in on-premise beverages (think bars and restaurants). Additionally, it’s not a full cyclical post-recovery story given that more than two-thirds of its profit comes from the snacks/food business. Given that, investors played a barbell approach to COVID with exposure to both COVID-beneficiaries and COVID-recovery names and PEP falling in the middle, i.e, flying under the radar given the intense barbell focus.
Analyst view this level of underperformance as too severe for two reasons: “(1) [They] believe PEP organic topline growth outperformance vs. US centric food peers will re-emerge in 2021, supported by (2) PEP’s US scanner data in the last 12 weeks holding up better sequentially than US centric food