Investing.com - Shares in PepsiCo (NASDAQ: PEP ) inched lower in premarket U.S. trading on Tuesday after analysts at BofA downgraded their rating of the beverage group, citing slower growth at its Frito-Lay North America division.

In a note to clients, the analysts led by Bryan Spillane argued that while strength at Pepsi’s international segments has contributed to increased sales and profit, "it’s not enough at this point" to make up for the weaker returns at Frito-Lay North America.

BofA analysis suggests that the unit’s volumes have declined due in part to price hikes outpacing wages, adding that a return to volume growth at the business in excess of 100 basis points is "unlikely" until the 2027 fiscal year.

Market share losses at Pepsi’s North American beverages segment, which the analysts said have stemmed from a narrower portfolio of offerings and "being outmarketed by competitors," also present challenges.

Mexico, Pepsi’s second-largest market that accounts for 8% of total sales, is being impacted by heightened consumer uncertainty related to "current geopolitical events" as well, the analysts said. The country has been a target of U.S. President Donald Trump’s bid to impose tariffs on friends and adversaries alike, a move that some economists have warned could dent global economic activity.

Against this backdrop, the BofA analysts slashed their rating of Pepsi’s shares to "neutral" from "buy" and lowered their price target for the stock to $155 from $185.

"[W]e expect limited opportunity for either topline outperformance or for better than low single-digit [earnings per share] growth in 2025 and 2026," the analysts wrote.

"Though market rotation into Consumer Staples provides some support, we see limited scope for meaningful valuation re-rating until the market regains confidence in sales and profit growth that matches its higher-valued large cap staples peers."

Pepsi is due to report its latest quarterly results on April 24.