According to reports, JPMorgan analyst Andrea Teixiera expects PepsiCo (PEP.US) to lean more heavily on production efficiency to meet its full-year earnings per share guidance, given weakness in the savory snacks division, compounded by transportation pressures and disappointing North American trends.

However, this is likely insufficient to offset the weakness in the North American market, and Teixiera downgraded PepsiCo (PEP.US) from Overweight to Neutral in her report, while cutting the price target by 19% to $138. She stated: "Earnings expectations will likely continue to be revised downward, and facing multiple current pressures, investors may wait for expectations to return to reasonable levels before turning optimistic again."

Teixiera acknowledged that PepsiCo (PEP.US)'s international business has performed well this year, thanks to favorable weather and the boost from the FIFA World Cup. But excluding these non-recurring positive factors, the actual performance of the North American business is likely still below management's expectations, especially Frito-Lay North America (FLNA): despite adjustments to ingredient and packaging formulations and price reduction strategies, it has still failed to effectively drive sales growth.

Additionally, any improvement in PepsiCo (PEP.US) Foods North America (PFNA) seems largely dependent on macroeconomic conditions rather than any internally driven catalysts. Teixiera said: "After the first quarter, the business recovery momentum appears to have stalled."

As a result, she lowered her FY2027 earnings per share estimate from $9.05 to $8.86, and her FY2028 earnings per share estimate from $9.57 to $9.33. On the positive side, the current valuation (15 times price-to-earnings ratio) is basically in line with industry peers, and further downside for the stock price is limited.

Teixiera noted: "We believe a valuation re-rating is possible if management can demonstrate more sustained improvement in FLNA volumes—similar to the first quarter—and can consistently achieve low-single-digit organic sales growth over the next few years with a solid margin structure."

PepsiCo (PEP.US) will report third-quarter results before the U.S. market opens on October 8. Ahead of that, Teixiera has lowered her organic sales growth and earnings per share estimates from +3.2% and $2.31 to +2.8% and $2.29, respectively, to reflect softer North American expectations, weaker-than-expected tracked channel data, and consumer headwinds, partially offset by growth in international markets.