PepsiCo’s Valuation Gap and Margin Focus Drive Elliott’s Investment Thesis

Activist Investor Elliott Management takes $4 Billion Stake in pepsico, Pushing for Major Changes

New York, NY – September 5, 2025 – Shares of PepsiCo experienced a meaningful surge on Tuesday after elliott Investment management disclosed a $4 billion stake in the beverage and snack giant. This investment is coupled with a call for substantial changes designed to improve the company’s financial performance and close the gap with its primary competitor, Coca-Cola. The move signals a potential turning point for PepsiCo, which has underperformed in the market in recent years.

Elliott’s Assessment: Undervalued Potential

Elliott Investment Management, a prominent activist investment firm, believes PepsiCo is currently “deeply undervalued.” The firm typically acquires significant holdings in companies it deems to be underperforming and then actively pushes for strategic shifts to enhance value and deliver returns to investors. This approach often involves influencing corporate direction and operational improvements. Elliott’s substantial investment underscores their confidence in PepsiCo’s potential, despite recent market results.

Market Reaction and Initial Investor sentiment

The announcement of Elliott’s investment triggered an initial jump in PepsiCo’s stock price, rising almost 6% upon the news. However, the gains moderated throughout the trading day, ultimately closing with a more modest 1% increase. This suggests that while investors initially reacted positively, a more cautious assessment followed as they digested the details of Elliott’s proposed plan.According to data from Refinitiv,PepsiCo’s year-to-date returns have been approximately 20% over the last five years,but this lags considerably behind Coca-Cola’s 57% return during the same period.

The Core of Elliott’s Strategy: Refranchising and Margin Improvement

Elliott’s central advice for PepsiCo centers on restructuring its cost structure to align with Coca-Cola’s more efficient model. While PepsiCo boasts revenues of $92 billion – nearly double Coca-Cola’s $47 billion – its market capitalization is less then $100 billion higher. A key disparity lies in profitability, with PepsiCo’s adjusted net income margin at 12% in 2024, significantly lower than Coca-Cola’s robust 27%.

A major component of Elliott’s plan involves refranchising PepsiCo’s bottling operations.This entails selling off the factories and distribution networks responsible for manufacturing and delivering beverages. While PepsiCo would retain oversight of operations, it would avoid the substantial capital expenditures and direct costs associated with bottling and distribution. This strategy is inspired by Coca-Cola’s prosperous refranchising efforts, which, since completion in 2017, led to a more than 250 basis point expansion in adjusted operating margins. In contrast, PepsiCo’s margins have declined by roughly 100 basis points over the same period.

Comparative Performance: PepsiCo vs. Coca-Cola

Metric	PepsiCo (2024)	Coca-Cola (2024)
Revenue (Billions)	$92	$47
Market Capitalization (Billions)	[Data Not Provided]	[Data Not Provided]
Adjusted Net Income Margin	12%	27%
Bottling Operations	Company-Owned	Largely Franchised

Did You know? Coca-Cola completed its refranchising initiative in 2017, streamlining its operations and focusing on brand building and innovation.

Elliott argues that refranchising would not only improve PepsiCo’s margins but also allow the company to refocus on core strengths like beverage innovation and brand marketing. The fund’s detailed 75-page presentation outlines further strategies aimed at unlocking value within PepsiCo. Furthermore, elliott’s analysis indicates that Coca-Cola’s volume sales have stabilized following its refranchising, while PepsiCo’s have continued to decline.

Long-Term Outlook and Investor Considerations

Elliott anticipates that implementing these changes could drive a more than 50% increase in PepsiCo’s share value, perhaps matching the difference in market capitalization between the two beverage giants. However, investors should be aware that realizing these benefits will require a sustained, multi-year effort. A long-term investment horizon is crucial for those pursuing this strategy.

Despite the $4 billion investment, Elliott’s stake represents only approximately 2% of PepsiCo’s total shares. This limits the firm’s direct control,but Elliott has demonstrated a history of successfully influencing company decisions even with minority stakes.Securing depiction on PepsiCo’s board of directors is a likely next step for the activist investor.

Pro Tip: When evaluating activist investor situations, consider the firm’s track record and the feasibility of their proposed changes.

What impact will Elliott’s strategy have on PepsiCo’s long-term innovation? Will PepsiCo embrace these changes, or resist the pressure from Elliott Investment Management?

Understanding Activist Investing

Activist investing has become increasingly common in recent years, with funds like Elliott Management playing a more prominent role in corporate governance. These investors frequently enough target companies they believe are undervalued or poorly managed, seeking to unlock shareholder value thru strategic changes. The success of activist campaigns can vary widely, depending on factors such as the investor’s credibility, the strength of their arguments, and the willingness of the target company to cooperate. The rise of Environmental,Social,and Governance (ESG) investing has also added a new dimension to activist campaigns,with some investors focusing on improving a company’s sustainability practices or social responsibility efforts.

frequently Asked Questions About PepsiCo and Elliott Management

• What is Elliott Management’s primary goal with pepsico? Elliott Management aims to improve PepsiCo’s profitability and unlock shareholder value through strategic changes.
• What is refranchising and why does Elliott recommend it? Refranchising involves selling off company-owned bottling operations, reducing costs and allowing pepsico to focus on brand and innovation.
• How does PepsiCo’s profitability compare to Coca-Cola’s? PepsiCo’s adjusted net income margin (12%) is significantly lower than Coca-Cola’s (27%).
• What percentage of pepsico does Elliott Management own? Elliott Management currently owns approximately 2% of PepsiCo’s total shares.
• is Elliott Management likely to gain board representation at PepsiCo? It is possible, and a common tactic for activist investors, but not guaranteed.
• What are the potential benefits of Elliott’s plan for PepsiCo shareholders? Elliott believes its plan could result in a greater than 50% increase in PepsiCo’s share value.
• How long will it take to see results from Elliott’s proposed changes? Implementing elliott’s changes is expected to take several years to fully realize.

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How does Elliott Management propose to close the perceived valuation gap between PepsiCo and its competitors?

Elliott Management’s Core Argument: Unlocking PepsiCo’s Potential

Activist investor Elliott Management recently unveiled a notable stake in PepsiCo (PEP), accompanied by a detailed investment thesis centered around a perceived valuation gap and opportunities to substantially improve the company’s operating margins. Their analysis suggests PepsiCo is undervalued relative to its peers and possesses untapped potential for enhanced profitability. This isn’t simply a call for cost-cutting; it’s a strategic push for a more focused and efficient PepsiCo. Key to elliott’s argument is the belief that PepsiCo can achieve margins comparable to higher-performing consumer staples companies.

Identifying the Valuation disconnect

Currently, PepsiCo trades at a discount to key competitors despite possessing a portfolio of iconic brands – Pepsi Cola, Frito-Lay, Gatorade, and Tropicana – and a robust global distribution network. According to data from Avanza.se (as of September 5, 2025), PepsiCo’s stock has seen a recent performance of -1.72%. Elliott argues this underperformance isn’t justified given the company’s:

Brand Strength: Unrivaled brand recognition and consumer loyalty.

Diversified Portfolio: A broad range of products across beverages and snacks, mitigating risk.

Global Reach: A significant presence in both developed and emerging markets, particularly in North america.

Consistent Cash Flow: A history of generating strong and stable free cash flow.

The valuation gap stems, in Elliott’s view, from a lack of investor confidence in PepsiCo’s ability to consistently deliver margin expansion. They believe the market isn’t fully appreciating the levers PepsiCo has to pull to improve profitability.

The Margin Expansion Play: Three Key Pillars

Elliott’s thesis isn’t about radical restructuring. Instead, it focuses on three core areas to drive margin advancement:

1. Strategic Portfolio Optimization: This involves a critical evaluation of PepsiCo’s entire product portfolio. Elliott suggests divesting underperforming or non-core brands to streamline operations and free up capital for investment in higher-growth areas. This isn’t about eliminating popular products, but rather focusing resources on those with the greatest potential for return.
2. Operational Efficiency Improvements: Elliott identifies opportunities to enhance efficiency across PepsiCo’s supply chain, manufacturing processes, and distribution network. This includes leveraging technology, optimizing logistics, and reducing waste.Specifically, they point to potential savings in areas like packaging, transportation, and warehousing.
3. Revenue Growth Management (RGM): This pillar focuses on maximizing revenue through strategic pricing, promotional strategies, and product innovation.Elliott believes PepsiCo can improve its RGM capabilities by leveraging data analytics to better understand consumer behavior and optimize its pricing and promotion mix. This also includes a focus on premiumization – offering higher-margin products that appeal to evolving consumer preferences.

Real-World Examples & Precedents

Elliott points to prosperous margin expansion initiatives at other consumer staples companies as evidence that PepsiCo can achieve similar results. For example, Kraft Heinz, under 3G Capital’s leadership, implemented aggressive cost-cutting measures and RGM strategies that substantially improved its profitability. While the 3G approach was often controversial, it demonstrated the potential for margin improvement within the sector.

Another relevant example is Coca-Cola’s ongoing efforts to streamline its bottling operations and focus on its core beverage brands.These initiatives have contributed to improved margins and increased shareholder value.

The Impact of Shifting Consumer Trends

The current consumer landscape presents both challenges and opportunities for PepsiCo. Growing demand for healthier snacks and beverages, coupled with increasing price sensitivity, requires PepsiCo to adapt its product portfolio and pricing strategies. Elliott believes PepsiCo is well-positioned to capitalize on these trends by:

Investing in Healthier Options: Expanding its portfolio of low-sugar, low-calorie, and organic products.

Developing Innovative Products: Introducing new products that cater to evolving consumer preferences.

Optimizing Pricing: Balancing price increases with maintaining affordability and competitiveness.

Elliott’s Proposed Board Portrayal

to ensure accountability and drive the implementation of its strategic plan, Elliott has nominated its own candidates to PepsiCo’s board of directors. This is a common tactic for activist investors seeking to influence corporate strategy. Having representation on the board allows elliott to directly engage with management and advocate for its proposals.

Key Search Terms & Related Topics

PepsiCo Stock (PEP)

Elliott Management

Activist Investor

consumer Staples

Margin Expansion

Valuation Gap

Revenue Growth Management (RGM)