Nicholson raised her share-price target to $169 — a Wall Street high, according to Bloomberg — from $148.
Pepsi shares recently traded at $141.76, up 2.4%. They have risen 3% year to date, while the S&P 500 has gained 9% during that period.
The new target indicates 22% upside for the stock from Friday’s close at $138.44.
Improving operating margins could boost Pepsi shares, Nicholson wrote in a commentary cited by Bloomberg. The stock’s multiple should “expand considerably from current levels,” she said
“Structural issues as a result of its business mix” have pressed the Purchase, N.Y., company’s operating margin thinner than that of giant consumer-staple peers Procter & Gamble (PG) – Get Report and Coca-Cola (KO) – Get Report, even as Pepsi has the “most consistent organic-sales growth of the three,” she said.
Pepsi’s beverage business has lagged behind food during the Covid pandemic.
Morningstar analyst Nicholas Johnson likes PepsiCo, though he sees the stock as just about fully valued.
“With wide-moat PepsiCo’s stock rallying in the days leading up to its third-quarter earnings print, it seemed like investors were becoming increasingly enamored by” several prospects, he wrote in an Oct. 1 commentary.
Those prospects included: “1) continued growth in snacks, 2) recovery in beverages, and 3) moderating coronavirus-related costs,” Johnson said.
“The firm delivered on almost all fronts, culminating in top- and bottom-line beats relative to CapIQ consensus.
“Management’s full-year guidance (4% organic growth and core EPS of $5.50) was a smidge ahead of our expectations, though not meaningful enough to alter our $140 fair-value estimate, leaving the shares fully valued in our view.”