Coca-Cola (KO -4.52%) and PepsiCo (PEP -3.18%) have been at the center of a legendary face-off, as each tries to capture the imagination and loyalty of consumers worldwide. Over the years, the battle between these cola titans has been fierce, with each vying for a bigger share of the market.
Both companies are staples in households around the globe and major players in the consumer packaged goods sector. However, it’s crucial for investors to look past their storied histories and consider what the future holds for each brand. So, which one should you trust with your money—Coca-Cola or PepsiCo?
Sure, stock analysis may not be as thrilling as their TV commercials, but it’s essential to determine which company offers the best potential for your investment.
Coca-Cola
Coca-Cola’s journey began in 1886, with its famous drink. Today, it’s a beverage-focused company, but it offers more than just soda. It has diversified into water, coffee, tea, juice, and plant-based drinks. Remaining relevant over a century is no small feat, and Coca-Cola’s ability to grow its revenue is a testament to its resilience.
In the fourth quarter, the company’s revenue, adjusted for acquisitions, divestitures, and currency fluctuations, grew by an impressive 14%. The main driver was a 9 percentage point increase in price/mix, with the rest coming from a boost in volume. Notably, Coca-Cola’s operating income surged 22% during the same period, a remarkable achievement considering consumers are cautious with their spending amidst high inflation.
Coca-Cola has certainly rewarded its shareholders, with stock prices rising approximately 18% over the past year as of April 4, outpacing the S&P 500’s 1.4% loss.
Currently, Coca-Cola’s stock trades at a slightly higher valuation than the S&P 500, with a trailing price-to-earnings (P/E) ratio of 28 compared to the index’s 27.
PepsiCo
PepsiCo has taken a different route by extending beyond beverages into food items. Under brands like Cheetos, Doritos, Life, and Quaker, PepsiCo’s portfolio includes tortilla chips, potato chips, cereal, and granola bars.
Despite a strong historical track record, PepsiCo’s revenue growth has been sluggish recently. In the fourth quarter, adjusted revenue increased by 2.1%, thanks to a balance of volume and price hikes. Through effective cost control, adjusted earnings per share rose by 14%.
For 2024, PepsiCo reported a 2% revenue increase, entirely due to price hikes adding 4 points, while volume declines subtracted 2 points. The outlook for significant revenue acceleration remains dim, with management predicting low-single-digit growth.
This lackluster growth has reflected in PepsiCo’s stock performance, which has seen a 14% decline over the last year. The P/E ratio has also contracted from 26 to 21.
The Winner
Both companies, operating on a global scale, are likely to feel impacts from trade tariffs. Although the full consequences remain unknown, investors should be prepared for short-term fluctuations.
In this climate, keeping a long-term investment horizon and a focus on the companies’ core strengths is crucial. Dividends are key components of total shareholder returns for both Coca-Cola and PepsiCo, potentially becoming even more significant in an uncertain global economy.
Coca-Cola and PepsiCo have both consistently increased dividends for over half a century, earning the coveted title of Dividend Kings, with yields of 2.9% and 3.7%, respectively.
While both are dependable dividend payers, your decision may boil down to growth prospects. With Coca-Cola’s current stride and ability to maintain consumer engagement amidst economic pressures, it seems to edge out PepsiCo, even with its steeper price tag.
