In a note Monday, Morgan Stanley raised PepsiCo (NASDAQ:PEP) to Overweight from Equal-Weight, highlighting the stock as a top pick in the beverages sector and overall.
The firm maintained a $190 price target on PEP shares, stating that they previously downgraded the stock based on its valuation and its guidance being too high.
However, they now believe these issues have played out. As a result, analysts at Morgan Stanley "would be aggressive buyers here ahead of a powerful inflection in H2 after PEP bottoms fundamentally in Q1, and returns to above consensus and peer OSG, with PEP's valuation compression overdone."
The "fundamental PEP inflection [is] now on the horizon," added the firm, after "1) a large 170 bps OSG miss in Q4, Pepsi's first OSG miss in seven years, 2) a 980 bp peak to trough OSG deceleration from Q4 vs. Q1 in 2023, 3) a guide down for FY24 OSG, and 4) a soft guided-to start in Q1 of 2024."
Analysts see PEP OSG bottoming in the first quarter at 2.3% and "inflecting to slightly above peer and consensus OSG in the BOY, including to 5-6% in both Q3 and Q4."