Consumer Products

Why Coca-Cola Beats PepsiCo in an Investor Taste Test in August

PepsiCo offered no formal guidance for 2020 either, but it continues to expect total cash returns to shareholders of roughly $7.5 billion (dividends of $5.5 billion and share repurchases of $2.0 billion).

For the full year, the Coca-Cola consensus earnings estimates were $1.83 per share on revenue of $32.6 billion. Analysts had PepsiCo’s 2020 consensus estimates at $5.34 per share and $67.17 billion after its report. This would value Coca-Cola and Pepsi both very close to 26 times earnings.

As for dividends, the Dow component Coca-Cola has a 3.4% yield, and Pepsi currently comes with a 3.0% yield. Coca-Cola’s market cap is now $206 billion, compared with $190 billion for its rival.

The stay-at-home life helped PepsiCo more than it did Coca-Cola due to its snack foods. The Quaker Foods North America segment reported organic growth of 23%, as consumers bought more oatmeal for breakfast and baking needs, and its Frito-Lay North America saw organic sales growth of 6%. While beverages dropped as a whole, PepsiCo’s juice business has been far more successful, as more consumers look at this as a healthy alternative in the era of COVID-19.

At $48.00 apiece, Coca-Cola shares are up 4.3% since its earnings report. The lowest close in March’s selling panic was $37.56, so its shares are up about 28% from the panic selling lows. At $136.00 each, PepsiCo shares are basically up 1% since its earnings report. Pepsi’s lowest closing price around the panic selling nadir was closer to $104, so its stock is up around 31% since then.

Where Coca-Cola and PepsiCo shares differ greatly is on how their current share prices stack up against their old 52-week pre-recession highs. Coca-Cola shares would have to rally just over 25% to $60.13 before breaching their prior highs. PepsiCo shares would have to rally only about 8% to reach the prior $147.20 high. PepsiCo’s $146.86 consensus price target leaves an implied upside of 8%, and Coca-Cola’s consensus target price of $53.45 implies upside of more than 11%. As for annual performance year to date in 2020, Coca-Cola shares were down about 13%, versus a 1% drop for PepsiCo shares.

As August has started out, the trade has been a rotation out of the major strength stocks from the lockdown and into the companies that stand to win from more reopenings and whatever the back-to-school economy is going to look like. Coca-Cola and PepsiCo used to be very defensive stocks, but very little was working the way things used to back in March.

The valuations and numbers are very close between PepsiCo and Coca-Cola, but as of August 11, 2020, the verdict for an investor taste test based on the current snapshot seems to tip in Coca-Cola’s favor. That may be very close and may not be the case in a week, but that’s how the taste test looks now.