Coca-Cola (KO -1.17%) and PepsiCo (PEP 0.74%) are both considered stable blue chip consumer staples companies. Both stocks are also Dividend Kings, with more than 50-year streaks of annual dividend hikes.
Over the past five years, both stocks delivered total returns of about 50% when factoring in dividend reinvestment. They're both still safe stocks to buy, hold, and forget -- but which one would be the better pick to add to your portfolio right now?
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The similarities and differences
Coca-Cola and PepsiCo might initially seem similar, but the two companies operate using different business models. Coca-Cola only sells beverages, while PepsiCo also sells packaged foods through its Frito Lay, Quaker Foods, and Pioneer Foods divisions. Coca-Cola's tight focus on drinks enables it to generate higher gross margins than PepsiCo.
Source: YCharts.
Coca-Cola and PepsiCo both sell concentrated syrups and drink bases to regional bottlers and other businesses that then produce the finished drinks. To counter declining soda consumption rates across the world, both have diversified their portfolios with an array of brands of bottled water, fruit juices, teas, sports drinks, and other non-carbonated drinks. They've also refreshed their flagship sodas, introducing new flavors, healthier versions, and additional container sizes.
Both companies have also increased their exposure to the energy drink market over the past decade. Coca-Cola invested in Monster Beverage (MNST 0.25%) in 2014, while PepsiCo acquired a stake in Celsius Holdings (CELH 2.89%) in 2022. The beverage giants also became the preferred distribution partners for those two energy drink makers.
Which company is growing faster?
Coca-Cola suffered a sales slowdown in 2020 as the pandemic shut down restaurants and other venues that carried its drinks. Growing retail sales of beverages for home consumption only partly offset the steep declines of the away-from-home channel. However, PepsiCo continued growing its revenues as it sold more packaged foods throughout the pandemic.
|
Company |
2019 Organic Sales Growth |
2020 Organic Sales Growth |
2021 Organic Sales Growth |
2022 Organic Sales Growth |
2023 Organic Sales Growth |
|---|---|---|---|---|---|
|
Coca-Cola |
6% |
(9%) |
16% |
16% |
12% |
|
PepsiCo |
5% |
4% |
10% |
14% |
10% |
Data source: Company earnings reports.
But in the three years that followed 2020, Coca-Cola generated stronger organic sales growth than PepsiCo. PepsiCo's organic sales are still rising, but its broader mix of drinks and packaged foods exposed it more heavily to inflationary headwinds. Both companies have repeatedly raised their prices to offset their higher costs over the past two years.
In 2024, Coca-Cola expects its organic sales to rise by 9% to 10% while PepsiCo anticipates 4% growth. PepsiCo is struggling more with the inflationary headwinds, and has had to institute several major recalls over the past year.
Which company is more profitable?
Coca-Cola and PepsiCo both report their bottom line growth with "comparable" and "core" earnings per share (EPS) figures (on a constant-currency basis). Those adjusted numbers, which trickle down from their organic sales, tune out the near-term noise from acquisitions, divestments, and fluctuating foreign exchange rates.
|
Company |
2019 Comparable/Core EPS Growth* |
2020 Comparable/Core EPS Growth* |
2021 Comparable/Core EPS Growth* |
2022 Comparable/Core EPS Growth* |
2023 Comparable/Core EPS Growth* |
|---|---|---|---|---|---|
|
Coca-Cola |
9% |
(2%) |
17% |
17% |
15% |
|
PepsiCo |
(1%) |
2% |
12% |
11% |
14% |
Data source: Company earnings reports. *Constant-currency basis.
Both companies generated strong double-digit earnings growth over the past three years. For 2024, Coca-Cola expects that streak to continue with 13% to 15% comparable EPS growth on a constant currency basis. PepsiCo expects its core constant currency EPS to rise by "at least 8%" as it deals with its aforementioned challenges.
Which stock is a better value?
Over the past 10 years, Coca-Cola only reduced its share count by about 1%. PepsiCo bought back 7% of its shares. Neither company prioritizes big stock buybacks -- they route most of their free cash flow (FCF) into dividends instead.
Coca-Cola has raised its dividend for 62 consecutive years, while PepsiCo has hiked its payout for 52 straight years. At current share prices, Coca-Cola's payout gives it a forward yield of 2.8%, while PepsiCo has a slightly higher forward yield of 3.1%. Both have paid out about three-quarters of their earnings as dividends over the past 12 months, and those reasonable payout ratios should give them ample room to further raise their payouts.
Coca-Cola's stock trades at 24 times forward earnings, while PepsiCo has a slightly lower forward multiple of 21. Both stocks still seem reasonably valued, but Coca-Cola's stronger growth is clearly reflected in its higher valuation.
The better buy right now: Coca-Cola
Coca-Cola is a pricier stock with a lower dividend yield, but its business model is simpler, it operates at higher margins, and it's growing faster. It also isn't navigating recalls or juggling a massive portfolio of packaged foods in an inflationary environment. Based on those facts, Coca-Cola should remain a better safe haven play than PepsiCo this year.
