Soda staple PepsiCo Inc (NASDAQ:PEP) received a downgrade from analysts Tuesday due to concerns over slower-than-expected growth.

What Happened: Bank of America Securities analyst Bryan Spillane downgraded PepsiCo shares from Buy to Neutral and lowered the price forecast from $185 to $155.

In a Tuesday research note, Spillane recalled the 1986 book, “The Other Guy Blinked; How Pepsi Won the Cola Wars,” which chronicles how Pepsi caused its biggest rival, The Coca-Cola Company, to change its recipe.

“Today we blinked,” Spillane said. “After having been asked repeatedly by investors since the beginning of the year ‘why are you still a buy on PEP?’ we have run out of answers and are downgrading to Neutral.”

The decision to downgrade reflects several bearish feelings, including the fact that gains in international markets are not fully offset by Frito-Lay North America’s losses.

With limited revenue and earnings upside, Bank of America sees minimal potential for a significant valuation boost.

PepsiCo's Frito-Lay North America is facing volume declines partly due to snack prices outpacing wage growth, with a recovery unlikely before fiscal 2027.

The aggressive pricing outpacing wage growth by wide margins has driven consumers away, leading to the first annual volume decline since 2010.

Marketing efforts in 2024 didn't significantly boost sales, suggesting consumers remain price-sensitive and unresponsive to temporary discounts.

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The analyst expects volume to rebound only when the gap between product prices and wages narrows. If pricing remains flat in 2025, this will likely happen in 2026.

Meanwhile, Pepsi Beverages North America continues to lose market share due to a limited product range and stronger competitor marketing.

The segment is underperforming in fast-growing categories like energy drinks and zero-sugar sodas due to weak competitiveness.

Pepsi's flavor and zero-sugar portfolios are also losing ground to Coca-Cola, noted the analyst.

The analyst remarked that in Mexico, the company's second-largest market, consumer spending is being affected by increased uncertainty tied to geopolitical tensions.

Despite ongoing headwinds, PEP has maintained strong earnings through effective cost and profit management. Much of this resilience stems from solid gross margin performance in its international markets.

Research indicates that a significant portion of the company's EPS growth over the past two years has been driven by productivity gains in the cost of goods sold.

The analysts see limited downside risk but also limited upside until U.S. performance improves.

Price Action: PEP shares traded lower by 1.99% at $143.83 at last check Tuesday.

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