PepsiCo Inc. (NYSE: PEP) is scheduled to report its most recent quarterly results later this week, but one key analyst isn’t exactly bullish on what the company may have in store. Jefferies took a step back on its valuation of Pepsi, considering a challenging North American market.

Jefferies downgraded Pepsi to a Hold rating from Buy and lowered its price target to $108 from $133. This new target implies downside of 3% from the most recent closing price at $111.43.

The brokerage firm made this downgrade due to slowing North American Beverage (NAB) trends, contracting food multiples, high exposure to difficult U.S. environment and likely need for reinvestment should cap the stock over the next year.

In its report, Jefferies said:

NAB (25% profits) market share trends continue to deteriorate and will likely require greater innovation/reinvestment to fix, compromising a key tenet of our prior thesis. Pepsi is losing market share in some 85% of its beverage portfolio over the LTM in tracked channels, including CSDs (-120 bps) and sports drinks (-105 bps). Consistent with these trends, NAB org sales/FX neut OI growth slowed to 1%/2% in 1H17 vs. 2.5%/8% in FY15-16, and we now f-cast >1%/3% for FY18-19 vs. 2%/6% prior.

Jefferies now sees modest downside to Pepsi’s shares over the near term with foreign exchange neutral operating income growth likely to slow to about 4% to 5% (versus the consensus of roughly 6%), which should constrain Pepsi’s multiple.

The U.S. beverage industry remains fiercely competitive, with Pepsi feeling pressure from both incumbents, like Coca-Cola and Dr Pepper Snapple, as well as nascent brands as food multiples also rapidly compress. Its prior view that productivity savings would drive upside and improving NAB trends would drive multiple expansion is no longer valid.

Shares of PepsiCo were last seen down about 1.3% at $109.90, with a consensus analyst price target of $124.29 and a 52-week range of $98.50 to $119.39.

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