What CEO Transition Means for Pepsi

We're maintaining our Exemplary stewardship rating for wide-moat

We don't foresee a material shift in Pepsi's strategy with Laguarta at the helm, given his 22-year tenure at the firm, extensive knowledge of its operations, and key role in setting its strategy as president. Under Nooyi's leadership, the company bolstered its portfolio of healthier offerings, which now contribute roughly half of sales compared with about 38% in 2006, and better aligned its portfolio with evolving consumer tastes (with above 5% compound sales growth over this period). As such, we posit that this bent toward more natural and wholesome fare will continue. We expect Pepsi will reinforce its brand-related investments, with combined expenditures on advertising and research and development approximating 7% of sales over the next 10 years, in line with historical rates. We contend that these investments will help the company develop and bring new products to market, ensuring that its competitive advantage remains unwavering. In this context, we're reiterating our $123 fair value estimate, which calls for 3% top-line growth and operating margin around 18% on average over our forecast period.

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