Why Hedge Fund Elliott Bet $4B on Pepsi and Sees Over 50% Upside

Core Viewpoint - PepsiCo has underperformed compared to its rival Coca-Cola and the broader consumer staples sector, with a total return of approximately 20% over the past five years, significantly lower than Coca-Cola's 57% and the Consumer Staples Select Sector SPDR Fund's 37% [2][4] Group 1: Investment and Market Reaction - Elliott Investment Management has taken a $4 billion stake in PepsiCo, which led to a nearly 6% surge in shares upon announcement, although the closing increase was only 1% [4][9] - Elliott believes PepsiCo is "deeply undervalued" and aims to influence the company's strategic objectives to unlock value [3][5] Group 2: Financial Performance and Comparisons - PepsiCo's last twelve months (LTM) revenue stands at $92 billion, nearly double Coca-Cola's $47 billion, yet Coca-Cola has a market cap nearly $100 billion higher [5] - PepsiCo's adjusted net income margin for 2024 is projected at 12%, less than half of Coca-Cola's 27% [5] Group 3: Strategic Recommendations - One of Elliott's key proposals is for PepsiCo to refranchise its bottling operations, which could significantly improve profit margins by reducing direct costs associated with capital-intensive bottling and distribution [6][7] - Elliott's analysis suggests that refranchising has allowed Coca-Cola to stabilize soda sales and focus on higher-value drivers, a strategy PepsiCo could adopt to regain market share [7] Group 4: Future Outlook - Elliott forecasts that if PepsiCo implements its proposed changes, shares could deliver more than 50% upside to investors, aligning with the difference in market capitalizations between Coca-Cola and PepsiCo [8] - Despite a $4 billion investment representing only a 2% stake in PepsiCo, Elliott has a history of successfully influencing companies to adopt its strategies, potentially through gaining board seats [9]