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PepsiCo (PEP) Scales a 52-Week High on Healthy Prospects

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Shares of PepsiCo Inc. (PEP - Free Report) hit a 52-week high of $118.12 on May 30. The stock pulled back to end the trading session at $118.01, gaining 0.09% on the day.

The $168.43-billion beverage giant witnessed its shares rising roughly 16.2% in the last one year, outperforming the Zacks categorized Beverages-Soft Drinks industry’s growth of 5.8%.




What’s Driving the Stock?

Cola companies have been facing challenges amid the shift in consumers’ preferences. Given this backdrop, PepsiCo is working hard in transforming itself in order to adapt to the changing customer needs of healthier lifestyles.

Per media reports, PepsiCo is in talks to buy All Market Inc, the owner of coconut water brand, Vita Coco, in a bid to diversify its offerings amid soft sales. According to Reuters, PepsiCo has offered less than the $1 billion for the deal. However, neither the PepsiCo spokesperson nor representatives of Vita Coco commented on the development.

As per data tracker Euromonitor International, Vita Coco is the global leader in coconut water, with 26% market share worth $2.5 billion. Founded in 2004, Vita Coco now spans across 30 countries.

Now, good-for-you products as well as bottled water are gradually gaining traction amid the shift in consumers’ preferences. Coconut water has become a prime alternative to coolers across North America and Europe.

PepsiCo is gradually reshuffling its portfolio toward healthier “Everyday Nutrition Products.” These products contain nutrients such as grains, fruits, vegetables, or protein, and the portfolio falls under a broader category of “Guilt Free Products”. The company now generates 45% of its revenues from this category, which also comprises beverages with less sugar and sodium content.

Like PepsiCo, other rival companies are also opting for alternatives to counter weak sales. PepsiCo’s competitor, Dr Pepper Snapple Group Inc. acquired antioxidant beverages maker Bai Brands LLC for $1.7 billion in January.

The Coca-Cola Co. (KO - Free Report) is also making significant efforts to invest in newer revenue platforms to boost long-term sales and profits. On Mar 28, the beverage giant and its largest Latin American bottler Coca-Cola Femsa SAB (KOF - Free Report) finally closed the proposed acquisition of AdeS soy-based beverage business from consumer products giant Unilever Plc (UL - Free Report) .

The AdeS takeover will boost Coca-Cola’s beverage portfolio in Latin America enabling it to increase the number of nutritious and delicious products offered to its consumers.

We believe, PepsiCo as well as other beverage companies’ efforts to offer more diversified products to reap benefits from a shifting consumer preference toward good-for-you and health and wellness products will bode well in the years to come.

Zacks Rank

PepsiCo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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