CNBC Stock Blog

Pepsi Strong—But 'Behind the 8-Ball' in North America: Analysts

Pepsico remains "the only global snack food player" but "they are definitely behind the 8-ball in North America," JPMorgan senior analyst John Faucher told CNBC Tuesday. "That’s what’s driving investor sentiment and they have to show they can dig out of that hole."

Pepsico reports earnings before the market open Wednesday.

Faucher said 2012 will "be a difficult year" across the entire beverage sector, but Pepsico "probably needs to spend more in marketing, relative to what they’ve been doing over the last few years" to make up for slow North American sales. Faucher has an overweight rating on the company.

Pepsico: Time to Buy?

Janney Montgomery Scott Senior Analyst Jonathan Feeney, who has a buy rating on Pepsico, agreed.

In the same interview, Feeney said the outlook on the beverage and snack conglomerate at its current valuation level "should hinge on what sort of returns those [marketing] investments will eventually make. By my math, these guys need to spend about 30 or 40 cents over the next year or two years in earnings against the business, to keep up with bigger rivals like Coca-Cola... I think they’ll do it. I think it’ll pay off."

Neither analyst believes the company will gain in value if it decides to split into separate beverage and snack businesses.

"It’s the North American beverage multiple that’s dragging down the rest of the company," Faucher said. "If they can spend more and get that momentum back, it really takes the pressure off trying to do a splitup. So I still think it’s highly unlikely that we’ll see that."

"Splitting off costs a lot of money," added Feeney. "Two or three years from now it won’t matter whether they have split apart all that much, nearly as much as it matters how much investment they do, and how much market share" the company keeps.

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Jonathan Feeney does not own shares but Janney Montgomery makes a market in Pepsico securities. John Faucher does not own shares but JP Morgan has provided investment banking services.