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PepsiCo Closes CytoSport Buyout, Fortifies Nutrition Portfolio

Zacks Equity Research

PepsiCo Inc. PEP has successfully completed the buyout of the CytoSport business from Hormel Foods Corporation HRL to overcome the effects of the fall in carbonated soft drinks ('CSD') category sales. The company paid about $465 million for CytoSport, which comprises of Muscle Milk and Evolve brands.

The Muscle Milk brand 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.

Notably, the CytoSport business is 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 13.2% in the past three months compared with the industry’s growth of 3.6%. Currently, this beverage and snacking giant carries a Zacks Rank #4 (Sell).

 


PepsiCo is growing nutrition brands — including Quaker, Tropicana and Gatorade — to counter headwinds 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 the dependence on colas. PepsiCo 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 fortified PepsiCo’s beverage and fast-growing water portfolio — including Aquafina, Lifewtr and more — but also expanded at-home refreshment beverage offerings. Further, SodaStream expedites PepsiCo’s highly-nutritious and great-tasting beverage offerings.

Looking for Better-Ranked Beverage Stocks? Check These

New Age Beverage Corporation’s NBEV estimates for the current fiscal year witnessed positive revisions in the last 30 days. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ambev S.A. ABEV, also a Zacks Rank #2 company, has average long-term EPS growth rate of 7.2%.

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