There are some ‘troubling trends’ in sports drinks — and that’s bad news for Pepsi (PEP) | Markets Insider

  • Pepsi’s Gatorade drink will likely continue to be a drag on the business given the waning popularity of sports drinks in the US. 
  • Customers are choosing water over sports drinks, and many name health and wellness concerns as a reason for their change in behavior. 
  • US sports drinks are losing market share. 
  • Watch PepsiCo trade in real-time here.

More and more Americans are ditching sports drinks for bottle or tap water due to health and wellness concerns, and that doesn’t bode well for beverage maker Pepsi.

Gatorade, the company’s key sports drink, has been a drag on business and Jefferies sees potentially unfavorable secular and competitive headwinds going forward.

“Our Jefferies Spring 2018 US Beverages Survey reflects the troubling trends for PepsiCo in the US sports drinks category,” Jefferies analyst Kevin Grundy wrote in a note to clients. “FY18 will be a year of course-correction.”

Pepsi is also seeing lower brand loyalty for its Gatorade drink as new competitors join the market. In particular, sports drink BodyArmor, which has been backed by Kobe Bryant, poses a threat to the Gatorade brand. Grundy estimates BodyArmor will increase its market penetration from 5% to 8%-18% over the next five years.

As a result, Grundy believes deteriorating profit trends in Pepsi’s non-alcoholic beverages sector will likely continue, noting Coca-Cola and Dr Pepper Snapple Group were “superior” in terms of carbonated soft drink innovation, marketing and execution.

Grundy lowered his price target to $96 from $105 and wrote, “Do not see recent pullback as a buying [opportunity].” He maintains his “hold” rating.

PepsiCo is down 18% this year.

Source: There are some ‘troubling trends’ in sports drinks — and that’s bad news for Pepsi (PEP) | Markets Insider