PepsiCo vs. Coca-Cola: What's the Better Stock?

Core Viewpoint - The performance disparity between Coca-Cola (KO) and PepsiCo (PEP) has become evident, with KO outperforming PEP over the last year, raising questions about which stock is the better buy currently [2][4][17]. Company Performance - PepsiCo reported mixed results in its latest quarterly release, exceeding EPS estimates but falling short on sales expectations, with FY24 organic sales increasing by 2% year-over-year compared to 9.5% in 2023, and adjusted EPS of $8.16 rising by 9% [5][12]. - North America results for PepsiCo were soft, with Frito-Lay sales declining by 0.5% year-over-year, a significant slowdown from the previous year's 9% growth [6][18]. - The decline in Frito-Lay sales is attributed to a shift in consumer preferences towards dining out, with Quaker Foods North America experiencing a 14% decline in organic sales due to an oatmeal recall [7][18]. - Despite the challenges in North America, PepsiCo's international results were strong, with organic sales climbing by 6% in FY24 [9]. - Analysts have adopted a bearish outlook on PepsiCo following its results, resulting in a Zacks Rank 4 (Sell) due to concerns over North America's performance [11]. - Coca-Cola exceeded both EPS and sales expectations, reporting growth rates of 12% and 6% respectively, and gained market share in the nonalcoholic ready-to-drink beverage sector in North America [12][13]. - Coca-Cola's overall price/mix increased by 11% in FY24, with unit case volume growing by 1% year-over-year, benefiting from its lower exposure to the snacks market compared to PepsiCo [13][14]. - Coca-Cola also performed well internationally, gaining market share in regions such as Latin America, Europe, the Middle East, and Africa [14]. Valuation - Coca-Cola shares currently trade at a forward 12-month earnings multiple of 21.8X, representing a 27% premium over PepsiCo's 17.2X, marking the steepest premium in the past five years [15]. - EPS for PepsiCo is expected to increase by 2% in FY25, while Coca-Cola is forecasted to see a 6% increase [15]. Summary - The recent financial results of both companies highlight a stark contrast, with Coca-Cola showing positive growth and market share gains, while PepsiCo faces challenges in its North American segment and a bearish outlook from analysts [17][18].