Citi downgraded PepsiCo (PEP) to Neutral from Buy and lowered its price target to $145 from $170 in a note released on Friday, citing sustained weakness in the company’s North American business that the firm's strategic responses have so far failed to correct.
Performance in North America
Analyst Filippo Falorni pointed out that PepsiCo's two major North American divisions - Frito-Lay North America (PFNA) and PepsiCo Beverages North America (PBNA) - have "remained soft despite PEP’s strategic actions," which the note lists as price reductions, product innovation and gains in shelf space.
Second-quarter North America results missed Citi's expectations. PFNA reported organic sales down 2% versus a flat consensus, while PBNA posted 1% growth against a 2% expectation. Citi interprets these outcomes as evidence that recent company measures have not yet reversed underlying volume weakness.
Management has attributed the shortfall in volumes primarily to what it described as "gas price-driven budget strains." Falorni expressed concern that a recovery may be less a function of company-level initiatives and more dependent on a broader macroeconomic inflection - an outcome he implies is outside of PepsiCo’s immediate control.
Guidance and medium-term outlook
Citi also flagged the trajectory of PepsiCo's full-year guidance as a reason for the downgrade. While management reiterated a 2026 EPS growth goal of 5-7%, it is leaning toward the lower end of that band. Citi notes that the guidance implicitly requires a North America-driven reacceleration in the fourth quarter of 2026 - an outcome the bank views as increasingly difficult to underwrite with confidence given current trends.
Looking beyond 2026, Citi warned of "an increasingly challenging 2027 set-up," as PepsiCo cycles through its North America innovation and pricing initiatives. The firm highlighted several headwinds that could weigh on results, including still-elevated cost inflation and a diminishing contribution from earlier, larger productivity savings.
Structural concerns
Citi further identified structural considerations that constrain upside in valuation. The note pointed to adoption of GLP-1 drugs as a factor that could limit the potential for multiple expansion, leaving "limited room for a multiple improvement, even off the current depressed base."
The downgrade reflects Citi's view that company-specific actions have not yet produced a clear, sustainable turnaround in North American operations and that macro factors and structural trends could keep pressure on both near-term performance and longer-term valuation.