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Forbes
03-07-2025
- Business
- Forbes
Is PepsiCo A Better Stock Than Coca-Cola?
EDMONTON, CANADA - FEBRUARY 15: A Coca-Cola advertisement board with the slogan 'Enjoy! Coca-Cola' ... More stands outside a restaurant in Edmonton, Alberta, Canada, on February 15, 2025. (Photo by Artur Widak/NurPhoto via Getty Images) PepsiCo's stock (NASDAQ:PEP) has significantly lagged this year, recording a 10% decrease, while its competitor, Coca-Cola stock (NYSE:KO), has experienced a 16% rise. This contrast is mainly attributed to the sluggish North American operations for PepsiCo. The company has encountered a decline in consumer interest for its Frito-Lay snack sector and has dealt with a substantial recall in its Quaker Foods North America branch (oatmeal). These challenges have adversely affected organic sales, prompting PepsiCo to lower its full-year forecast. They now expect core constant-currency EPS to remain flat year-over-year, a notable drop from the earlier anticipated mid-single-digit increase, and foresee only low single-digit growth in organic revenue. This cautious outlook has understandably shaken investor confidence. In spite of these recent difficulties, our analysis indicates that PepsiCo offers a more attractive investment opportunity than Coca-Cola over the coming years. This belief is rooted in a thorough assessment of historical revenue trends, investment returns, and comparative valuation metrics. The subsequent sections will elaborate on the rationale behind this viewpoint. That said, if you're seeking a potential upside with a more stable experience than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, delivering >91% returns since its launch. Separately, see – SOFI Stock To $30? How Are Coca-Cola and PepsiCo's Sales Trending? Coca-Cola has achieved a 7% average annual revenue growth from 2021 to 2024, rising from $38.7 billion to $47.1 billion. This slightly exceeds PepsiCo's 5% average annual growth, which saw its revenue increase from $79.5 billion to $91.9 billion during the same timeframe. Coca-Cola's revenue growth is driven by strong performance in both its at-home and away-from-home channels. This growth is largely fueled by effective pricing strategies that have enabled the company to handle inflationary pressures. Regionally, North America and Latin America have been the main contributors to this growth, reflecting a strong demand for Coca-Cola's diverse beverage range. PepsiCo's revenue growth from 2021 to 2024 was propelled by strategic pricing moves and robust performance in its beverage and snack sectors, although growth encountered significant challenges due to operational difficulties. The company benefitted from heightened interest in zero-sugar varieties of Pepsi, and it retained market share advancements in Gatorade. However, PepsiCo's growth path was heavily impacted by the Quaker Oats recall issue, which commenced in late 2023 due to salmonella contamination. The recall was triggered by salmonella that persisted at a PepsiCo facility for up to four years, ultimately resulting in the permanent closure of the Illinois Quaker Oats factory. Despite these obstacles, PepsiCo achieved annual revenue growth, showcasing the strength of its core beverage and Frito-Lay divisions in counterbalancing the notable decline in the Quaker sector. What About Profitability? From 2021 to 2024, Coca-Cola experienced a slight decline in its net margin, decreasing from 25.3% to 22.6%. This is associated with rising mixed costs, product mix, and increased marketing expenses. See – Coca-Cola's Net Margin Comparison – for further details. On the other hand, PepsiCo's net margin increased from 9.6% to 10.4%. While the increase was modest, PepsiCo benefitted from productivity initiatives and effective pricing for its products. Financial Risk Analysis In assessing financial risk, Coca-Cola performs slightly better than PepsiCo. Coca-Cola's debt-to-equity ratio of 16% is more advantageous than PepsiCo's 27%. Moreover, its cash-to-assets ratio of 14% surpasses PepsiCo's 8%. In essence, Coca-Cola showcases a stronger debt profile while maintaining a more stable cash position. KO and PEP: Comparing 4-Year Stock Returns Against the S&P 500 Since early January 2021, Coca-Cola's stock has experienced solid growth, rising approximately 40% from around $50 to its current price of about $70. In contrast, PepsiCo's stock has shown minimal movement, creeping up only about 4% from $130 to $135 during the same timeframe. This underperformance by both beverage giants is particularly noticeable when juxtaposed with the S&P 500, which has surged by roughly 65% since the beginning of 2021. However, a detailed examination of the annual returns paints a more intricate picture of volatility for both KO and PEP: When compared to the S&P 500's performance (27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024), it's evident that both Coca-Cola and PepsiCo underperformed relative to the broader market in 2021, 2023, and 2024. While KO has shown more consistent positive returns throughout the entire period, PEP's recent challenges have affected its overall long-term performance. PEP Stock: The Superior Beverage Investment Choice? We contend that PepsiCo (PEP) currently provides a more appealing investment opportunity than Coca-Cola (KO), largely due to its advantageous valuation. PEP stock trades at merely 17 times its trailing adjusted earnings of $8.03 per share. This is significantly lower than its four-year average price-to-earnings (P/E) ratio of 22 times, indicating it is undervalued relative to its historical performance. Conversely, KO stock is trading at 25 times its trailing adjusted earnings of $2.89 per share. This valuation is above its own four-year average P/E of 22 times. Although PepsiCo has faced recent challenges, particularly due to the Quaker issue affecting North American sales, we expect a recovery in this area in the upcoming quarters. Although PepsiCo's revenues are anticipated to remain flat this year, we predict they will return to mid-single-digit growth starting next year. This expected rebound, alongside its current discounted valuation, positions PepsiCo favorably compared to the two beverage giants. For investors aiming to reduce the inherent volatility linked to individual stocks like KO and PEP, alternate investment strategies are accessible. The Trefis RV strategy, celebrated for its track record of outperforming its all-cap stock benchmark, provides a diversified route to potentially secure robust returns. Likewise, the High Quality portfolio has shown superior performance compared to the S&P 500, yielding returns in excess of 91% since its inception, thus providing potential upside with reduced stock-specific risk.
Yahoo
09-02-2025
- Business
- Yahoo
3 Reasons Why This 4%-Yielding Dividend King Is the Ultimate Passive Income Powerhouse to Buy Now
PepsiCo (NASDAQ: PEP) stock fell 4.5% on Tuesday, putting it within just a couple of percentage points of a 52-week low. The food and beverage titan reported fairly weak full-year 2024 results. 2025 guidance calls for a prolonged slowdown across its business units, with a low single-digit increase in organic revenue and a mid-single-digit rise in core constant currency earnings per share (EPS). Despite the poor results and bleak outlook, here are three reasons why PepsiCo is a dividend stock worth buying now. PepsiCo is a highly diversified business -- both in terms of the products it sells and its geographical reach. Compared to a company like Coca-Cola, which almost exclusively focuses on the non-alcoholic beverage category, PepsiCo owns Frito-Lay and Quaker Foods, and has dozens of brands spanning coffee, tea, energy drinks, soda, juice, chips, snacks, dips, spreads, and more. PepsiCo benefits from diversification because the company isn't tied to one product or end market. But diversification can also weigh down the broader business. As you can see in the following table, Frito-Lay North America, Latin America, and Asia Pacific, Australia and New Zealand, and China are all fairly high-margin. But PepsiCo Beverages North America -- the largest segment by revenue -- is also PepsiCo's lowest-margin segment. Segment 2024 Revenue 2024 Operating Profit 2024 Operating Margin Frito-Lay North America $24.755 billion $6.316 billion 25.5% Quaker Foods North America $2.676 billion $303 million 11.3% PepsiCo Beverages North America $27.769 billion $2.302 billion 8.3% Latin America $11.718 billion $2.245 billion 19.2% Europe $13.874 billion $2.019 billion 14.6% Africa, Middle East, and South Asia $6.217 billion $798 million 12.8% Asia Pacific, Australia and New Zealand, and China region $4.845 billion $811 million 16.7% Total $91.854 billion $12.887 billion 14% Data source: PepsiCo. Energy drinks have the potential to boost PepsiCo's beverage business. PepsiCo has a distribution agreement with Celsius Holdings, as well as a minority stake. But PepsiCo didn't mention energy drinks or Celsius in its prepared remarks. When an analyst asked about energy drinks, management responded by brushing off the question, saying there was nothing to update about, which seemed a little strange given past optimism about energy drinks. PepsiCo is facing demand challenges and difficult pricing power across its business. However, on the earnings call, management reaffirmed its intentions to deliver high single-digit EPS growth over the long term. PepsiCo seems optimistic about its long-term growth potential, but didn't shy away from the extent of near-term challenges and the sluggish growth the business is projected to have in the near term. Understandably, the stock has sold off, given PepsiCo's slowdown. But PepsiCo has fallen to bargain bin levels, especially for such a high-quality company. Based on 2024 full-year EPS of $6.95 and a stock price of $143.49 at the time of this writing, PepsiCo has a price-to-earnings (P/E) ratio of just 20.6. That's a steep discount compared to the S&P 500 P/E ratio of 30.2. PepsiCo's median P/E ratio over the last three-year, five-year, seven-year, and 10-year periods has ranged from 26.1 to 26.6. So investors are getting the chance to scoop up shares of PepsiCo at a considerable discount to its historical average. Granted, short-term-minded investors may argue that PepsiCo deserves to trade at a discount, because it isn't growing as fast as it did in past years. But long-term investors know that some of the best decisions are made when a great company sells off for factors that have little to do with the core investment thesis. PepsiCo has a clear runway for long-term growth, especially internationally. It may take a couple of years for the company to get back to the pace of growth investors had grown accustomed to in recent years. But the valuation already reflects this challenge. Better yet, investors can get paid to wait for the business to recover, with an impeccable dividend. PepsiCo's dividend is as good as it gets. The company just announced a 5% dividend raise, marking the 53rd consecutive year it has increased its payout. That means PepsiCo retains its coveted spot on the list of Dividend Kings, which are companies that have paid and raised their dividends for at least 50 consecutive years. PepsiCo's dividend raise boosts the quarterly payout to $1.4225 per share, starting with the June 2025 payment. Based on a forward dividend of $5.69 per share and a stock price of $143.49, PepsiCo has a yield of 4%. That's a significantly higher yield than other Dividend Kings like Procter & Gamble -- which has a 2.4% yield -- or even Coca-Cola's 3.1% yield. Over the last 15 years, PepsiCo's yield has mostly hovered around 2.5% to 3%. So the stock's sell-off, plus consistent raises, have pushed its yield to historically high levels -- creating a compelling passive income opportunity for patient investors. PepsiCo isn't firing on all cylinders, but neither is the stock price. At times like this, it's best to focus on the big picture to see if the sell-off has gone too far. The packaged food industry is in a slowdown, not just PepsiCo. PepsiCo is still growing in key markets and exhibiting good margins, but it's being weighed down by a strong dollar, which is leading to unfavorable foreign exchange. The stock is cheap by historical levels, and the yield is far higher than historical averages. So, the struggles in the underlying business have been more than reflected in the valuation. Now is the perfect time for patient investors to scoop up shares of PepsiCo and collect passive income while the business navigates these challenges. PepsiCo's high yield provides a worthwhile incentive to simply hold the stock, instead of trying to time the turnaround. Add it all up, and PepsiCo stands out as one of the best dividend-paying value stocks to buy now -- especially for risk-averse investors looking for a company they can count on to keep raising its dividend, even when the business isn't at its best. Ever feel like you missed the boat in buying the most successful stocks? Then you'll want to hear this. On rare occasions, our expert team of analysts issues a 'Double Down' stock recommendation for companies that they think are about to pop. If you're worried you've already missed your chance to invest, now is the best time to buy before it's too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you'd have $336,677!* Apple: if you invested $1,000 when we doubled down in 2008, you'd have $43,109!* Netflix: if you invested $1,000 when we doubled down in 2004, you'd have $546,804!* Right now, we're issuing 'Double Down' alerts for three incredible companies, and there may not be another chance like this anytime soon.*Stock Advisor returns as of February 3, 2025 Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius. The Motley Fool has a disclosure policy. 3 Reasons Why This 4%-Yielding Dividend King Is the Ultimate Passive Income Powerhouse to Buy Now was originally published by The Motley Fool Sign in to access your portfolio
