) to hold from buy.
Analyst Caroline Levy thinks the secular profit growth rate at Frito Lay North America (almost 50% of Pepsi's profits) will decline from 10% to 7%-8% due to Pepsi's reduced ability to raise prices in absolute terms or through innovation. Levy believes Wal-Mart is creating price ceilings on most food categories, and she thinks Frito-Lay North America's R&D efforts could run out of steam and require reinvigoration.
Levy sees a slowdown in volume growth at Pepsi-Cola North America due to tougher competition from Coke's strengthening system, and tougher comps against Code Red and Pepsi Twist launches.
She cut her $1.95 2002 earnings per share estimate to to $1.94, and cut the $2.15 estimate to $2.10. Levy also trimmed the $45 target to $41.