The Most Likely Targets For A Kraft Heinz Deal: Mondelez Or Pepsi

Susquehanna’s Pablo Zuanic believes Kraft Heinz Co KHC needs to look at an M&A deal, with the two most likely candidates being Mondelez International Inc MDLZ and PepsiCo, Inc. PEP.

The analyst also believes a deal with PepsiCo would make more strategic sense for Kraft Heinz.

Zuanic upgraded the rating on PepsiCo from Neutral to Positive, while raising the price target from $118 to $132.

Thoughts On PepsiCo

“With investors apparently seeing MDLZ as the next likely KHC target, and The Coca-Cola Co KO the next Anheuser Busch Inbev NV (ADR) BUD target, PEP shares have lost visibility and now trade at a 25 percent discount to KO on apples-to-apples comps,” the analyst said.

Zuanic expressed optimism regarding PepsiCo’s franchise strength, initiatives to align its F&B portfolio with consumer health trends, as well as the increasing “optionality value” of a joint bid for the company from Kraft Heinz and Anheuser Busch.

The analyst pointed out that several issues suggest PepsiCo is still struggling to find a new direction, such as “the Kendall Jenner commercial, the Aspartame to-be-or-not-to-be zigzagging, the new, new, new alt low-cal cola (Pepsi Zero sugar),” among others.

There has also been some talk of PepsiCo acquiring Brazilian dairy company Vigor S.A.

Related Link: PepsiCo's 11-Day Trading Range Still In Tact

A Better Fit

Therefore, Zuanic believes PepsiCo might be more vulnerable than Mondelez International to a bid from Kraft Heinz, while stating PepsiCo would be a better strategic fit for Kraft Heinz due to its Foods/Snacks business.

On the other hand, PepsiCo might be a better fit for Anheuser Busche than Coca Cola, since PepsiCo has bottling operating in key geographies.