By Evie Liu

PepsiCo has lost its fizz, and activist investor Elliott Investment Management sees an opening to push for a turnaround. Investors should wait before jumping on the bandwagon.

Elliott, a hedge fund with about $76 billion in assets, on Sept. 2 said it had taken a $4 billion stake in PepsiCo, pressing for changes at the struggling snack-and-beverage giant. The stake accounts for about 2% of PepsiCo's market capitalization and makes Elliott one of the company's largest investors.

PepsiCo's split focus on snacks and beverages used to be its strength, but both segments have been struggling. Beverages continue to lose market share to competitors: Pepsi, the company's namesake product, is no longer America's No. 2 soda, having been surpassed by Dr Pepper in 2023 and Coca-Cola's Sprite in 2024.

Its packaged-food business -- with brands like Doritos and Lay's, once a growth engine -- has been hit by weak consumer spending, shifting health preferences, and a backlash against ultraprocessed foods.

The stock is now deeply discounted, trading at 18 times expected earnings for the next 12 months, cheaper than Coca-Cola's 23 times and the S&P Consumer Staples index's 20 times.

Elliott wants a leaner PepsiCo, and believes its plans could boost the stock's valuation back in line with peers, the market, and its own history. The valuation recovery, along with better earnings, could lift shares by more than 50% from today's depressed levels, says the activist investor.

To start with, PepsiCo's spending should match today's weaker volume environment, says Elliott. That means cutting manufacturing and distribution overhead by outsourcing low-margin, asset-heavy bottling operations. This way, PepsiCo could focus on building brands, developing formulas, and driving sales. The move could also free up more cash for debt reduction, reinvestment, or shareholder returns.

Elliott also wants PepsiCo to sell underperforming, noncore brands like pasta, syrups, and cereals, and regain market share in its core brands such as Pepsi, Mountain Dew, and Gatorade.

Expansion into growing categories should be "selective," says Elliott. PepsiCo's North America beverage unit has 70% more unique products than Coca-Cola, but generates 15% less in retail sales, according to the investor.

PepsiCo says it maintains "an active and productive dialogue" with shareholders and will review Elliott's proposals.

In the past, activist involvement at PepsiCo failed to lead to outsize stock gains. In 2012, Nelson Peltz's activist firm Trian Partners disclosed a $1.2 billion stake in PepsiCo and pressed the firm to either separate its snacks and beverage businesses or merge with Mondelez International.

PepsiCo's board rejected the breakup and instead instituted a $5 billion cost-savings plan. Trian exited its stake in May 2016. PepsiCo stock increased 27% over this period, but still underperformed industry benchmarks and the S&P 500.

Elliott isn't recommending a breakup this time, and Wall Street is generally receptive to its plans. "We view this as a positive because it heightens pressure on management to move faster on initiatives," TD Cowen analyst Robert Moskow wrote.

Moskow said Elliott's plan is "highly consistent" with his own view that "food companies with focused portfolios and category leadership have a better chance of long-term success than diversified companies trying to leverage operating and marketing capabilities across a wide range of categories." He raised his price target for the stock to $155 from $140; the shares recently traded around $147, with a dividend yield of 3.9%.

Steve Powers, an analyst at Deutsche Bank, has doubts about establishing stand-alone bottlers -- which he says could "materially dilute" current shareholders. He noted that PepsiCo has been integrating its food and beverage businesses to seek savings. This runs counter to Elliott's suggestion to outsource manufacturing and delivery. "We are not convinced refranchising itself is a straightaway solution," he says.

Investors are on the sidelines for now. PepsiCo stock jumped following Elliott's announcement but lost much of the gains over the next two days. Shares have tumbled 25% from their 2023 peak and are down 2.2% so far this year.

Wall Street might need to see more details from Elliott's prescriptions -- as well as PepsiCo's clear commitment -- before its stock valuation takes off.

Write to Evie Liu at evie.liu@barrons.com

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September 05, 2025 21:30 ET (01:30 GMT)

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