Why Pepsi Is a Better Buy Than Coca-ColaPEP) and Coca-Cola (KO) have performed terrifically over the last few years despite the growing health concerns and fitness trends. However, going forward, I expect only one of the two giants to outperform the market. Due to its diversity, I think Pepsi more than Coca-Cola at current levels, and would recommend investors to buy the stock.
When it comes to nonalcoholic drinks and snacks, Pepsi has a very strong presence across the globe.
Nowadays, the shift in the direction of healthier nutrition has become a major trend in the industry. And Pepsi is heavily investing in this area. The company’s guilt-free variety of products, which comprise both naturally healthy products as well as low-calorie products, presently account for 45 percent of its entire revenue base.
Moreover, PepsiCo has also started a motivated program to surge profitability through its productivity improvements, and it has successfully managed to cut its yearly expenses considerably every year since 2012.
In addition to this, Pepsi also has an amazing track record of dividend payments.
Most significantly, the company has gathered 44 successive years of consistent dividend growth. In addition to the dividend, the company has sturdy fundamentals and flawless financial performance.
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Coco-Cola is Pepsi’s biggest rival and is also trading at a conservative valuation. As a matter of fact, Coco-Cola also has very high brand value as the company sells a product for dollars that it can manufacture for pennies. As a result, Coca-Cola has an extremely robust track record of returning profits to stockholders.
While Coca-Cola is cheaper than Pepsi, it is also having a hard time growing its sales and earnings as compared to Pepsi. One more important thing to notice is that the company’s debt pile is escalating rapidly. The company’s debt has shot up 9% since the start of FY2015. Not only this, soda consumption is also gradually declining in developed markets, and this is a drift that has been going on for years. Worldwide growth and new products may not be enough to aid Coke growing into its existing high valuation.
With soda consumption falling consistently, Pepsi appears to be the better choice for investors due to its diversified revenue stream. On top of this, Pepsi also has a stronger domestic presence in the noncarbonated beverages segment due to leading brands such as Gatorade and Tropicana. As a result, betting on Pepsi would be more beneficial for investors going forward.
Published on Sep 19, 2016By Akshansh Gandhi