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Coca-Cola vs. PepsiCo: Which Stock Looks More Promising Moving Forward?

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Fierce competition exists within every corner of the stock market. It’s no secret that companies are continuously trying to gain an edge on one another and increase their market share.

The rivalries these companies form are actually quite beneficial from a consumer standpoint. It forces companies to continuously seek innovative ways to improve business operations and produce high-quality products. Additionally, it makes for exciting action within the stock market.

A pair of legendary rivals within the market is Coca-Cola (KO - Free Report) and PepsiCo (PEP - Free Report) . Both companies reside in the Zacks Beverages – Soft Drinks Industry, an industry that ranks in the top 37% of all Zacks Industries and has a year-to-date return of -4%, easily outperforming the S&P 500’s decline of 18%.

We see KO and PEP products at nearly every turn in the modern world; the two have created a massive market for their beverages. While the two companies are extremely popular, which one deserves to be in your portfolio over the other? Let’s find out by comparing valuation metrics, forecasted growth rates, share performance, and dividends.  

Coca-Cola

Coca-Cola (KO - Free Report) has witnessed tapered demand for soda over the last several years. Needing a solution, KO has invested in healthier drink alternatives, such as coffee, sparkling water, and sports drinks.

KO shares have displayed great strength year-to-date, while most of the market has suffered. Throughout 2022, shares have returned a respectable 4%, while the S&P 500 has declined 18%. In a market filled with red, KO shares being in the green shows how highly investors have defended the stock.

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Coca-Cola’s forward earnings multiple sits at 24.3X, just a tick above its median of 24.2X over the last five years and noticeably below 2020 highs of 29.1X. Additionally, the value represents a 40% premium relative to the S&P 500’s forward earnings multiple of 17.4X.

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For the current fiscal year, earnings are expected to grow by a robust 7% year-over-year, with the current year’s Consensus Estimate Trend increasing marginally over the last 60 days. Furthermore, the $0.68 per share estimate for the upcoming quarter displays zero change in the bottom line from the year-ago quarter. While quarterly earnings appear stagnant, annual EPS is still expected to climb considerably year over year.

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Looking at revenue, the top line is forecasted to expand by a strong 9% year-over-year for the current fiscal year. For the upcoming quarter, the $10.8 billion sales estimate displays a 7% expansion in the top line from the year-ago quarter. It seems that investing in healthier drink alternatives has helped propel the top line.

KO has become known for its commitment to rewarding investors. Coca-Cola has a dividend yield of 2.9% but has a slightly concerning payout ratio sitting at 73% of earnings. The company carries a five-year annualized dividend growth rate of 3.1%, and KO is not only a Dividend Aristocrat but it is also a Dividend King.

PepsiCo

PepsiCo (PEP - Free Report) has been benefitting from investments within its brands, supply chains, manufacturing capacity, and digital capabilities.

Year-to-date, PepsiCo shares have not been as strong as KO shares. The company’s shares have declined 6% throughout the year but have still been able to outpace the general market considerably. It seems that investors have had higher confidence in KO shares.

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In an exciting development, PEP’s forward earnings multiple sits right at 24.3X, nearly identical to that of Coca-Cola’s. Moreover, the current value sits comfortably below 2022 highs of 27.8X and just a marginal amount above its median of 23.6X over the last five years.

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Five out of five analysts have downwardly revised their quarterly estimates for the upcoming quarter, and seven out of eight analysts have lowered their outlook for the current year’s full-year earnings over the last 60 days. Additionally, the $1.72 per share estimate for the upcoming quarter displays zero change from the year-ago quarter, but full-year earnings are expected to grow 6.1% year-over-year.

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Compare this with KO, which has seen five out of six analysts up their outlook for the current fiscal year’s earnings; it’s quite the difference.

The Zacks Consensus Sales Estimate has PEP raking in $19.8 billion for the upcoming quarter compared with year-ago quarterly sales of $19.2 billion. Furthermore, for the current fiscal year, the top line is expected to expand by 4.8% on the back of sales projections of $83.3 billion.

Like KO, the annual dividend yield is a big perk of investing in PEP shares. PEP has an annual dividend yield sitting at 2.7%, with a slightly less concerning payout ratio sitting at 68% of earnings. Additionally, the company has a five-year annualized dividend growth rate of 6.7%, and in 2022, PepsiCo will become a Dividend King with its 50th consecutive annual dividend increase.

Bottom Line

It’s quite a tough decision to choose between these two beverage heavyweights. The two companies have been going back and forth against one another for decades.

KO has a higher dividend yield, has had stronger share performance, and has more robust earnings growth rates. Additionally, the company has witnessed more substantial estimate revisions and hasn’t had nearly as many analysts lowering their outlook.

For these reasons, I believe that KO would be a better place to park your cash.


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