It’s nearly inconceivable not to take a look at Coca-Cola (NYSE: KO) if you’re contemplating shopping for PepsiCo (PEP 0.77%) and vice versa. The 2 firms are iconic and globally dominant beverage giants. The worth charts of the 2 shares, nonetheless, look very totally different immediately. If you’re a long-term dividend investor, PepsiCo appears to be like like it’s the most engaging after Coca-Cola’s current rally. This is why.
What do Coca-Cola and PepsiCo do?
Coca-Cola makes a variety of drinks. Mainly, that is all it does. The corporate does this very effectively, with an enormous international distribution community, analysis and growth acumen, and advertising expertise that place it within the pantheon of the patron staples sector. It additionally has the size to behave as an trade consolidator, shopping for up firms with enticing merchandise and rising them by merely plugging the brand new merchandise into Coca-Cola’s distribution system. It’s a one-trick pony, however it’s a excellent trick.
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PepsiCo makes a variety of drinks. It additionally makes a variety of snacks and packaged meals merchandise. It has an enormous international distribution community, a robust analysis and growth division, and a advertising crew each bit nearly as good as Coca-Cola’s. As for scale, PepsiCo has an extended historical past of shopping for smaller manufacturers and increasing them, identical to Coca-Cola. PepsiCo’s most up-to-date endeavor on this entrance is Mexican American meals maker Siete, which presents each snacks and packaged meals gadgets.
PepsiCo will not be as dominant a beverage firm as Coca-Cola; Pepsi-Cola has dropped to 3rd within the cola wars. Nonetheless, it’s the No. 1 snack model and a really strong No. 2 within the broader beverage house. In packaged meals, it holds its personal in opposition to bigger friends. In different phrases, it’s a well-run and diversified meals firm. Buyers who like diversified companies will most likely desire PepsiCo primarily based on this truth alone.
That mentioned, each Coca-Cola and PepsiCo are Dividend Kings, which speaks to the energy of their underlying companies. Coca-Cola’s dividend streak is somewhat longer, however an organization merely cannot enhance its dividend for 50+ years with out having a very good marketing strategy that will get executed effectively yr in and yr out. These two shopper staples firms stand toe-to-toe as companies, apart from diversification.
Coca-Cola is doing higher proper now
That mentioned, each firm that exists for lengthy sufficient will undergo each good durations and unhealthy durations. Proper now, PepsiCo is going through some enterprise weak point whereas Coca-Cola is executing higher. Buyers are conscious of the dichotomy and purchase and promote accordingly. In the event you have a look at the chart beneath, it virtually looks as if the 2 firms switched locations. However short-term enterprise gyrations aren’t what long-term traders ought to be apprehensive about. The larger query is whether or not or not the corporate, be it Coca-Cola or PepsiCo, continues to be effectively run.
The reply is that each of those shopper staples giants stay effectively run, however Coca-Cola is simply doing somewhat higher proper now. The issue with PepsiCo is mostly a relative one because it was in a position to push by means of giant value hikes when inflation took maintain following the coronavirus pandemic. That enhance is now over and it “solely” grew natural gross sales 2% and core earnings 9% in 2024. It’s calling for related efficiency in 2025, with low-single-digit gross sales development and mid-single-digit earnings development. That is really not unhealthy within the shopper staples sector, which is understood for being a sluggish and regular performer.
Primarily based on that information, nonetheless, traders have punished the inventory, which is down round 20% from its peak in 2023. The drop has pushed PepsiCo’s yield up towards the best ranges within the firm’s historical past. And its price-to-sales and price-to-earnings ratios are beneath their five-year averages. This can be a well-run firm that appears prefer it has been positioned on the sale rack.
By comparability, Coca-Cola’s inventory has rallied in current months. Its dividend yield is nowhere close to the historic highs for the inventory. And the price-to-sales and price-to-earnings ratios at the moment are each above their five-year averages. Previous to the rally, Coca-Cola was extra compellingly priced, however now it appears to be like somewhat costly. That makes PepsiCo look all of the extra enticing, given their direct competitors within the beverage sector.
Suppose long run and purchase PepsiCo over Coca-Cola
None of that is meant to counsel that Coca-Cola is a foul firm. The truth is, it’s a excellent firm. It simply is not as compellingly valued as PepsiCo, an equally good firm, is true now. The rationale has extra to do with the myopic imaginative and prescient of Wall Road, which focuses an excessive amount of on the quick time period. In the event you assume in many years, significantly if you’re an earnings investor, PepsiCo and its traditionally excessive 3.5% yield look much more enticing following Coca-Cola’s value rally.
