Mixing your drinks with your snacks makes for pretty soggy snacks. And, according to Nelson Peltz, it also makes for a pretty soggy business model when it comes to PepsiCo.
The activist investor, whose Trian Partners owns $1.2 billion worth of PepsiCo's stock, has published another white paper detailing why he thinks the company should split in two. Peltz writes to Ian Cook, Pepsico's Presiding Director:
"As you know, we are extremely concerned about PepsiCo’s extended period of underperformance relative to its food and beverage peers. The deteriorating trends in North American Beverage, questionable quality of earnings in 2013 and disappointing 2014 guidance reinforce our view that now is the time for decisive action. We believe the best way to ensure improved performance at PepsiCo is to separate global snacks and beverages, putting the future of each business in the hands of empowered and focused management."
(Click here for a 37-page .pdf of "Trian Letter and White Paper to PepsiCo Board")
According to Kevin Caron, portfolio manager and co-founder of Stifel Nicolaus' Washington Crossing Advisors, PepsiCo will benefit from Peltz's ideas even they aren't implemented.
"The discussion is great because it's focusing management – whether the deal goes through or not – on operating efficiency and trying to do the best thing in terms of shareholders," says Caron on CNBC's Street Signs' Talking Numbers segment. "Whether they get it done or not, it's tough to tell. The board is backing the chairman (Indra Nooyi). It's going to be tough to push that plan through. But, even drawing attention to it this way is a positive for shareholders."
Based on Stifel Nicolaus' research, Caron says the sum of the value of PepsiCo's components put the stock in a range between $75 and $100. The stock closed at $78.01 on Thursday.
"It's close to fully valued," says Caron. "The upside would be if everything goes through and you achieve that $100 kind of number. But, as I said, that's going to be quite a way off given the position of the board."
Meanwhile, JC O'Hara, Chief Market Technician at FBN Securities, believes Pepsico's share price is headed down based on the stock's technicals.
"This chart looks like it's in trouble," says O'Hara. He sees the stock as having twice tested a resistance level at $87 in the past year, forming a double top pattern, only to head back down. And, the stock broke below the $78 support level this past week.
"That actually opened the door for a 6.5% down move down to the $73 area," says O'Hara, who also notes PepsiCo's stock is now trading below its technically significant 150-day moving average.
"Now we have negative trend," says O'Hara. "There is a lot of bearish signals that are coming from this chart. I just want to stay away from this company right now. "
To see the full discussion PepsiCo with Caron on the fundamentals and O'Hara on the technicals, watch the video above.
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