This Vaccine Maker Is A Better Pick Over PepsiCo Stock

PEP: PepsiCo logo

We think that Pfizer stock (NYSE: PFE) currently is a better pick compared to PepsiCo stock (NYSE: PEP), despite its comparatively higher valuation. PFE stock is trading at 3.2x trailing revenues, marginally above 2.8x for PEP. Although these two companies are from different industries, we compare them due to their similar revenue base.

If we look at stock returns, Pfizer’s 35% return is better than a 13% growth for PepsiCo stock over the last twelve months. This compares with around -1% change in the broader S&P 500 index. While PEP stock has benefited from the opening up of economies, Pfizer stock has been rewarded for its strong sales of the Covid-19 vaccine and antiviral pill. Pfizer has also strengthened its pipeline with the acquisition of Arena Pharmaceuticals aiding its stock price growth.

There is more to the comparison, and in the sections below, we discuss why we believe that PFE stock will offer better returns than PEP stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of PepsiCo vs. PfizerWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. Pfizer’s Revenue Growth Has Been Stronger

  • Pfizer’s stellar revenue growth of 99% over the last twelve months is far better than 13% for PepsiCo.
  • Looking at a longer time frame, PepsiCo’s sales grew at an average growth rate of 7% to $79.5 billion in 2021, compared to $64.7 billion in 2018, while that of Pfizer grew at 32% to $81.3 billion in 2021, compared to $40.8 billion in 2018.
  • Pfizer’s sales over the recent years were primarily driven by a very high demand for the Covid-19 vaccine. However, as the global vaccination rate rises, the demand for Covid-19 vaccines is also expected to fall, weighing on Pfizer’s revenue growth over the coming years. The revenue growth in 2022, though, will be bolstered by the sales of its Covid-19 antiviral pill.
  • For PepsiCo, revenue growth over the recent past is being driven by a rise in the number of social events, restaurants back to full-scale operations, and, more importantly, people venturing out, aiding its beverage sales.
  • Our PepsiCo Revenue and Pfizer Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, PepsiCo’s revenue growth over the next three years is expected to be marginally better than Pfizer, which will see a revenue decline from its Covid-19 vaccine. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 2.4% for PepsiCo, compared to a 1.6% CAGR for Pfizer, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. Pfizer Is More Profitable, And It Has A Better Debt Position

  • Pfizer’s operating margin of 26% over the last twelve-month period is better than 20% for PepsiCo.
  • This compares with 36% and 15% figures seen in 2019, before the pandemic, respectively.
  • Our PepsiCo Operating Income and Pfizer Operating Income dashboards have more details.
  • Looking at financial risk, PepsiCo’s debt as a percentage of equity of 17% is higher than 12% for Pfizer, while its 7% cash as a percentage of assets is higher than the 1% for the latter, implying that Pfizer has a better debt position and PepsiCo has more cash cushion.

3. The Net of It All

  • We see that Pfizer has demonstrated better revenue growth, is more profitable, and has better debt position. On the other hand, PepsiCo is available at a comparatively lower valuation and it has more cash cushion.
  • However, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Pfizer is currently the better choice of the two, despite it being the more expensive of the two.
  • The table below summarizes our revenue and return expectations for PepsiCo and Pfizer over the next three years and points to an expected return of 26% for Pfizer over this period vs. only a 6% expected return for PepsiCo stock, implying that investors are better off buying PFE over PEP, based on Trefis Machine Learning analysis – PepsiCo vs. Pfizer – which also provides more details on how we arrive at these numbers.

While PFE stock may outperform PEP, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for UPS vs. Williams-Sonoma.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Jun 2022
MTD [1]
YTD [1]
Total [2]
PEP Return -1% -4% 59%
PFE Return -1% -11% 62%
S&P 500 Return 1% -12% 87%
Trefis Multi-Strategy Portfolio 3% -16% 230%

[1] Month-to-date and year-to-date as of 6/3/2022
[2] Cumulative total returns since the end of 2016

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