Pepsi Set to Redeem Faith in Soft Drink Business

NEW YORK (TheStreet) -- PepsiCo(PEP) , long criticized for neglecting its soft drinks and focusing excessively on building a healthy snacks portfolio, may finally see a turnaround in 2012, suggested by recent good news related to its soft drinks sales.

With initial sales of Pepsi Next better than expected and the company ready to spend an additional $600 million on advertisements in 2012, we could see a revival of its carbonated soft drink sales. PepsiCo competes with leading food and beverage companies around the world including Kraft Foods(KFT) Coca-Cola(KO) and Dr Pepper Snapple(DPS) .

We maintain a price estimate of $69, which is about 5% above the current market price.

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Hope Alive for Pepsi Brand

PepsiCo struck two major deals in April. First, it signed an agreement with DineEquity, which owns Applebee's as well as IHOP, allowing Pepsi to become the exclusive provider for the two restaurant chains. Currently, Pepsi is served in about 90% of Applebee's restaurants and half of IHOP's outlets.

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The second deal saw PepsiCo signing a multi-year agreement with Family Dollar stores, allowing Pepsi to be sold in its 7,100 stores across America. Both these deals give the beverage a much needed boost.

For Pepsi Next, the initial sales data suggests that the mid-calorie soft drink's performance has been better than anticipated, with the company claiming that the beverage is attracting new customers into the cola category. However, it is too early to comment on how the beverage will perform in the long run. Initial sales can be misleading as consumers often buy products on hype.