TD Cowen analysts flagged the company's 'shifting narrative on affordability' as a risk

PepsiCo's stock is down around 11% so far this year.

PepsiCo will be raising prices on some of its chips, dips and sodas in the months ahead, creating confusion and concern among analysts after the company cut prices earlier in the year.

On Monday, Deutsche Bank analysts downgraded PepsiCo's stock (PEP) to a hold rating and cut their price target on the shares. TD Cowen analysts also cut their profit estimates for this year and next.

In addition to its namesake Pepsi soft drinks, the company has a broad snack portfolio that includes chips like Cheetos, Doritos and Tostitos.

"Management's shifting narrative on affordability and continued market share losses in the U.S. increase the risk profile for 2027, in our view," TD Cowen analyst Robert Moskow said in a research note.

Deutsche Bank analyst Steve Powers on Monday said that some price increases were understandable, given higher costs for fuel, ingredients, packaging and shipping. But he said the planned price increases - which are arriving after the price cuts failed to improve sales - suggested deeper troubles.

"Successive interventions and refinements suggest the underlying problems are more difficult to solve than management (or we) initially understood," Powers said.

Powers lowered his price target on the stock to $138 from $155. The TD Cowen analysts also lowered their price target on PepsiCo's stock, to $133 from $145.

Shares of PepsiCo were down 0.4% on Monday. The stock, which is trading at around $128, has fallen around 11% so far this year.

Bloomberg reported on the planned price increases last week. PepsiCo, when reached, confirmed that reporting but declined to comment further.

A PepsiCo representative told the outlet that prices for some chips would rise "by a low-to-mid single digit percentage," an increase the company said was in line with inflation. PepsiCo told Bloomberg that those prices would still be lower than what the company was charging before it cut prices earlier this year.

PepsiCo had cut prices on snacks like Doritos and Cheetos by as much as 15% after shoppers complained that the products were too expensive. Bloomberg, citing people familiar with the matter, said the upcoming price increases would likely affect "grocery-store-sized bags" of chips like Doritos and Ruffles.

PepsiCo has faced competition from smaller brands and from retailers' own store brands, which are often cheaper and thus have held greater appeal for increasingly price-conscious shoppers. The use of GLP-1 medications has also reshaped consumers' diets and changed their appetite for snacks. The company has tried to roll out new products - like Doritos with protein and Pepsi with fiber - to hold shoppers' interest.

But PepsiCo's quarterly results in July showed that North America sales volumes for snacks, a measure of the amount of product sold, were flat. CEO Ramon Laguarta said the performance of the company's snacks and beverages segments fell due to "consumer budgets tightening due to rising inflationary pressures."

Powers said Monday that PepsiCo's current problems stemmed from its overaggressive price increases on snacks in North America during and after the pandemic. The company, he said, also invested in staffing and infrastructure at that time, when growth expectations were higher.

"Today, therefore, [Pepsi] appears caught between a cost structure built for higher growth and a consumer environment that remains structurally softer than expected," he said.

Moskow, at TD Cowen, said the price increases gave him less confidence about PepsiCo's stock. He noted that along with GLP-1s, potential restrictions on Supplemental Nutrition Assistance Program, or SNAP, subsidies could also put pressure on sales of salty snacks.

"Bigger picture, management will need to demonstrate on the next earnings call that they have diagnosed the reasons why their Frito-Lay strategy did not work out as they expected and how they will pivot their approach in 2027 besides just raising price," he said.

He also said that investors had been asking whether activist investor Elliott Investment Management, which owns 2% of PepsiCo shares, might take a more aggressive stance with the company.

"We do not know the answer, but we have seen them take this approach in other situations when agitating for change," Moskow said.

-Bill Peters