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PepsiCo to Boost Nutrition Portfolio With CytoSport Buyout

Zacks Equity Research

PepsiCo Inc’s PEP quest for innovative and complementary products, amid the mass boycott of carbonated soft drinks ('CSD'), has found a new prospect as it signed a deal to buy the CytoSport business of Hormel Foods Corporation HRL.

Hormel’s CytoSport business mainly includes the Muscle Milk brand, which should fully complement PepsiCo’s existing brands in the sports nutrition category. Further, PepsiCo’s long-standing distribution deal with CytoSport gives it an edge to own and expand this business.

The transaction, which awaits the satisfaction of customary conditions, is expected to be sealed in 30 to 60 days. However, the terms of the deal remained under covers.

Notably, Hormel’s CytoSport business will be the latest in PepsiCo's acquisitions under the ‘Performance with Purpose’ vision, which encourages health and wellness through cost-effective and environment-friendly beverages.

PepsiCo's shares reacted a little to the buyout news. But it has gained 5.9% in the past year against the industry’s decline of 7.8%. Currently, this beverage and snacking giant carries a Zacks Rank #3 (Hold).

 



PepsiCo is growing its nutrition brands — including Quaker, Tropicana and Gatorade — to counter headwinds that are arising from soft CSD sales. Further, it is expanding the portfolio of nutritious products in categories such as dairy, hummus and other fresh dips, and baked grain snacks. The company is also focused on broadening the beverage portfolio to include more non-carbonated beverages to decrease its dependence on colas. It has been expanding its value share in a number of fastest-growing categories — including tea, enhanced water and sparkling water. For this, it primarily depends on either innovation or acquisition of new brands.

As part of these efforts, the company acquired Health Warrior Inc. in October 2018. Health Warrior makes plant-based products — including nutrition bars and on-trend offerings. This acquisition expands PepsiCo’s nutrition portfolio, offering additional options to consumers in the nutrition bar category, which is a growing space.

Additionally, the company bought all outstanding shares of SodaStream International Ltd. for a cash outlay of $3.2 billion ($144 per share) in December 2018. The acquisition not only fortifies PepsiCo’s beverage and fast-growing water portfolio — including Aquafina, Lifewtr and more — but also adds at-home refreshment beverage offerings.  Further, SodaStream expedites PepsiCo’s highly-nutritious and great-tasting beverage offerings.

Looking for Better-Ranked Soft-Drink Stocks? Check These

Monster Beverage MNST has average long-term EPS growth rate of 16% and it currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Coca-Cola European Partners PLC CCEP, also a Zacks Rank #2 company, has average long-term EPS growth rate of 8.7%.

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