May 7, 2012 / 12:47 PM / 6 years ago

UPDATE 1-Morgan Stanley upgrades PepsiCo to overweight

* Morgan Stanley raises US beverage industry view to “attractive”

* Raises PepsiCo, Cott to “overweight” from “equalweight”

* Ups Dr Pepper Snapple Group to “equalweight” from “underweight”

May 7 (Reuters) - Morgan Stanley upgraded its view on the U.S. beverage industry to “attractive,” saying fundamentals for carbonated soft drink (CSD) are improving, driven by solid pricing and rebounding volume, and raised PepsiCo Inc to “overweight” from “equalweight.”

PepsiCo, the maker of Frito-Lay snacks, Quaker oatmeal and Tropicana orange juice, should be able to meet or slightly exceed the consensus earnings forecast in 2012-2013, and potential strategic changes at the company may drive its stock, Morgan Stanley said.

“We view PepsiCo as a win-win situation. Either higher marketing pays off and the stock outperforms, or continued fundamental struggles may lead to more drastic action, including management or strategic changes, which could unlock shareholder value,” Morgan Stanley analyst Dara Mohsenian wrote in a note.

Mohsenian — who is rated three stars by Thomson Reuters StarMine for the accuracy of his earnings estimates on the companies under his coverage — has a price target of $77 on stock of New York-based PepsiCo.

Shares of PepsiCo — which competes with Coca-Cola Co — closed at $65.90 on Friday on the New York Stock Exchange. They were slightly up at $66.06 on Monday in premarket trade.

Morgan Stanley also upgraded soft drink maker Cott Corp to “overweight” from “equalweight” on the company’s newly enhanced focus on returning cash to shareholders, cheap valuation and expectation of an improvement in fundamentals.

It also raised Dr Pepper Snapple Group to “equalweight” from “underweight,” saying the stock has high leverage to the improving U.S. carbonated soft drink industry dynamics.

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