PepsiCo's energy drink move creates a buzz
Mar. 14, 2020 11:07 AMPepsiCo, Inc. (PEP)KO, MNSTBy: Clark Schultz, SA News Editor
PepsiCo (NASDAQ:PEP) made a rock star deal with the pickup of RockStar Energy, but the extra financial load has the food & beverage giant on a ratings watch "negative" at Moody's for a potential cut.
"Moody's expects PepsiCo's management to remain relatively conservative and to maintain modest leverage despite somewhat high shareholder returns. However, a key factor in the review will be the extent to which the company is willing to reduce shareholder returns to restore stronger credit metrics after this or future acquisitions," notes the ratings agency.
The view from sell-side firms after the energy drink deal was more positive. "With Rockstar underneath their wings, they'll have a family of energy drinks... they can coordinate the activity of an entire family of brands to meet a variety of needs of people," updated Edward Jones analyst John Boylan on the acquisition. UBS also broke down the energy drink market development. "This deal demonstrates PEP’s intention to become a bigger player in the high-growth, high-margin Energy Drink space. Beyond deploying resources to reinvigorate the Rockstar brand, the transaction opens the door to further expansion opportunities in the category including innovations behind the existing portfolio in addition to future partnerships and acquisitions," advised analyst Sean King.
Shares of PepsiCo have fallen off 13% over the last six weeks amid the coronavirus outbreak and concerns over the global economy. Late last week, analysts warned that a lack of social gatherings and sporting events is a short-term negative for PepsiCo sales. That would likely apply to energy drink players Coca-Cola (NYSE:KO) and Monster Beverage (NASDAQ:MNST) as well.
