For Immediate Release
Chicago, IL – February 13, 2025 – Today, Zacks Investment Ideas feature highlights Coca-Cola KO and PepsiCo PEP.
PepsiCo vs. Coca-Cola: Which Is the Better Stock?
When thinking of Consumer Staples titans, Coca-Cola and PepsiCo undoubtedly jump to the forefront of many minds. Both have established themselves over decades of successful operations, also rewarding shareholders nicely along the way.
These defensive-natured stocks are great for balancing a risk profile, as they possess the advantageous ability to generate consistent sales in the face of many economic situations. And they also carry a track record of increasing quarterly dividend payouts, another major perk of targeting these stocks.
Still, there has been a big performance disparity between the duo over the last year, with KO shares widely outperforming.
It raises a valid question – what’s the better buy currently? Let’s take a closer look at each.
Breaking Down Results
PepsiCo posted mixed results in its latest quarterly release concerning headline figures, exceeding the Zacks Consensus EPS estimate but falling short of sales expectations. FY24 organic sales climbed 2% year-over-year (compared to 9.5% in 2023), whereas adjusted EPS of $8.16 moved 9% higher.
North America results came in a bit soft, with full-year 2024 Frito-Lay sales falling 0.5% year-over-year. It reflects quite a growth cooldown from the year-ago period when PEP posted 9% year-over-year North America Frito-Lay sales growth.
The cooldown here in Frito-Lay sales can be attributed to a big slowdown in the salty and savory snack categories, primarily attributed to a consumer that’s shifted preferences towards dining out/experiences. Quaker Foods North America saw its organic sales also decline by 14%, primarily attributed to a recall of its oatmeal.
PepsiCo Beverages North America did see a 1.0% increase in organic sales, reflecting the lone highlight from the region. Despite the softness of the results, PEP expects North America results to gradually improve throughout 2025, which could be a big tailwind given its recent underperformance.
Despite the softness in North America, its international results came in strong, with organic sales climbing 6% in FY24.
Analysts have taken a bearish stance on the company’s outlook following the release, landing the stock into an unfavorable Zacks Rank #4 (Sell). The cloudy revisions picture here alludes to further share pressure in the near-term. Keep in mind that North America represents the bulk of the company’s sales.
Concerning headline figures in KO’s latest release, the company exceeded both consensus EPS and sales expectations handily, reflecting growth rates of 12% and 6%, respectively. Like PEP, Coca-Cola also reported its full-year results, which we will focus on.
Notably, Coca-Cola gained market share in total nonalcoholic ready-to-drink beverages in North America, with its overall price/mix also increasing by an impressive 11% throughout its FY24. Unit case volume in North America also grew 1% year-over-year, driven by several of its popular beverage offerings.
The discrepancy in North America results relative to PEP is quite notable, with KO’s lower exposure to the snacks market providing a nice shield. KO’s international results were also strong throughout FY24, gaining market share in Latin America, Europe, Middle East, & Africa.
Valuation
Moving onto the valuation picture, KO shares presently trade at a 21.8X forward 12-month earnings multiple, a 27% premium relative to PEP’s 17.2X. It actually reflects the steepest premium we’ve seen over the past five years, with investors favoring KO’s outlook.
PEP’s current year EPS is expected to climb 2% in its FY25, whereas KO is currently forecasted to see a 6% move higher.
Putting Everything Together
These consumer staples titans both recently revealed their full-year and Q4 2024 results, with the reaction to KO’s results positive and the same for PEP negative.
PEP’s faced soft results within its North America segment as consumers shift towards dining out/experiences over cheaper snacks, a big deal given how much of its sales are generated from the region. Though PEP forecasted a recovery in the region throughout FY25, KO’s North America results showed little reasons to worry.
In addition, PEP’s current negative EPS outlook alludes to further near-term share pressure. We’d like to see positive earnings estimate revisions begin hitting the tape, which would reflect a big tailwind given the recent negative share performance.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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