The shares of Keurig Dr Pepper (NYSE: KDP) currently trade at $36 per share, which is 25% above its pre-Covid levels. On the other hand, shares of PepsiCo (NASDAQ: PEP) trade at $163 per share currently, which is 15% above its pre-Covid level. Does that make PEP a better stock pick compared to KDP? Both companies belong to the food and beverage industry – providing packaged beverages, concentrates, etc., while PepsiCo also provides food and snacks products. While PepsiCo is a much bigger and more geographically diversified company, KDP’s higher valuation multiple reflects a much better revenue growth over recent years and product mix. KDP is better placed as most of its sales come from brewing systems and bottled beverages, the demand for which is increasing as people are moving away from carbonated drinks. We compare a slew of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard analysis, Keurig Dr Pepper vs PepsiCo: Industry Peers; Which Stock Is A Better Bet?
- Keurig Dr Pepper’s revenue growth has been stronger than PepsiCo over recent years, with KDP revenues expanding almost 40% in the last three years, compared to a rise of only 3.5% in PepsiCo revenues. Such a sharp rise in KDP’s revenue was mainly driven by the acquisition of Dr Pepper Snapple by Keurig Green Mountain which led to the formation of Keurig Dr Pepper. If you look at the revenue growth over the last twelve months (LTM), PEP’s revenue growth has been slightly higher due to the acquisition of SodaStream and new product launches. However, KDP also saw impressive LTM revenue growth as KDP did not see any major impact of the pandemic on its sales, as at-home demand for K-Cups increased.
- KDP’s four operating segments – derives 44% of its revenue from bottled beverages (ending up in grocery and convenience stores) and 38% of sales from Keurig brewing systems and K-Cups, benefiting directly from the sudden surge in at-home consumption. Hardly 13% of KDP’s total revenues comes from concentrates (which are sold to affiliates that manufacture syrups used in fountain drinks), with its only international division – Latin America – making up only 5% of revenue.
- PepsiCo generates 55% of its revenue from food/snacks and 45% from beverages
- What To Expect From Keurig Dr Pepper’s Q3?
- Does Keurig Dr Pepper Stock Have More Upside?
- What To Expect From Keurig Dr Pepper’s Q2?
- Should You Buy Keurig Dr Pepper Stock At $36?
- Keurig Dr Pepper Stock Appears To Be A Better Pick Over This Travel Company
- Forecast Of The Day: Keurig Dr Pepper’s Coffee Systems Revenues
- Though both companies have seen an improvement in margins over recent years, KDP’s LTM operating margin is 5.6%, much lower than PEP’s 15.2%. However, KDP’s margins over the last three years have been better than PEP’s due to merger synergies.
- The rise in PEP’s margins recently was the result of higher revenues and cost savings from its productivity plan.
- KDP’s top line growth and acquisition synergies, along with at-home demand for its products, will lead to margin growth in the coming quarters.
- With respect to financial leverage, KDP is in a better position with debt as a percentage of total liabilities and shareholders’ equity standing at 25%. The metric is 44% in the case of PepsiCo.
- However, PEP has managed its cash in a better way. Its cash as a percentage of assets stands at over 7% compared to KDP’s 0.4%.
Net of it all
Though PepsiCo seems to have better profit growth recently, KDP is likely to exhibit strong revenue growth and better debt management going forward. What benefits Keurig Dr Pepper is also its product mix. KDP continues to have an edge over rivals Coca-Cola and PepsiCo, as its coffee segment continues to see growth with people moving away from carbonated drinks and replacing the same with beverages like coffee. This growth is set to continue as working at home by millions of people is benefiting the company’s direct and licensed K-Cup coffee sales.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates