PepsiCo’s beverage business might have failed to impress this quarter, but the company may have some big sweetener innovations on the horizon, according to Morgan Stanley analyst Dara Mohsenian.
“Based on PEP (PepsiCo’s) recent commentary surrounding innovation in CSDs, we believe PEP is close to a natural low-calorie sweetener innovation which is closer in taste to regular products,” Mohsenian wrote in a note to investors.
He added that “a successful innovation could be an important contributor to the stock,” which he already rates favorably, the result of what he believes is a slightly undervalued share price.
Overall, when reporting its second quarter results, PepsiCo reported adjusted earnings per share of $1.31, ahead of a consensus valuation of $1.19 per share. The company showed organic sales growth of 4.2 percent, although much of that gain came from the company’s snack foods business.
But a beverage sweetener breakthrough could be a big deal, according to Mohsenian, who cited the impact of Coke Zero on Coca-Cola’s U.S. earnings in the six years since its introduction. With an ingredient that could reverse – or at least mitigate – the slide in the company’s fast-weakening cola business would be a major catalyst, he said.
While other analysts did not view Pepsi’s quarter as favorably, Mohsenian said that Pepsi’s downside was “fairly limited.” In a discussion of breaking the company in two and acquiring recent Kraft spinoff Mondelez, an idea floated by investor Nelson Peltz, he added, the ultimate impact is simply to put pressure on executives to improve share performance.