Pick PepsiCo Stock Or Its Sector Peer: Both May Offer Similar Returns

We think PepsiCo stock (NYSE: PEP) and Campbell Soup stock (NYSE: CPB) will offer similar returns in the next three years. PEP stock is trading at 2.9x trailing revenues, compared to 1.8x for Campbell Soup. Investors have assigned a higher valuation multiple for PEP stock due to its superior revenue growth in recent years and better financial position, as discussed below.

Looking at stock returns, PEP, with a 7% gain in the last twelve months, has fared better than CPB, down 2%, and the broader S&P500 index, down 9%. There is more to the comparison, and in the sections below, we discuss the possible returns for PEP and CPB in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of PepsiCo vs. Campbell Soup: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. PepsiCo’s Revenue Growth Is Better

• Both companies posted sales growth over the last twelve months. Still, Campbell Soup’s revenue growth of 10.5% is better than 8.7% for PepsiCo.
• However, if we look at a longer time frame, PepsiCo fares better, with its sales rising at an average growth rate of 8.8% to $86.4 billion in 2022, compared to $67.2 billion in 2019, while Campbell Soup’s sales grew at an average rate of 1.9% to $8.6 billion in 2022 vs. $8.1 billion in 2019.
• Strong pricing trends have led PepsiCo’s revenue growth over the recent quarters.
• After Covid-19 induced lockdowns, the recovery has been swift for the beverage giant, with more people venturing out to travel and dine.
• Looking forward, a challenging macroeconomic environment and a strengthening dollar will likely weigh on the company’s top-line growth rate in the near term.
• Campbell Soup benefited during the pandemic, given the stockpiling of non-perishable foods with people confined to their homes.
• However, sales declined in 2021 due to volume decline and no pricing growth. The company’s 2022 sales were marginally higher as better price realization offset volume declines.
• Campbell Soup is expected to see high single-digit sales growth in 2023, with strong pricing trends, while volume continues to decline.
• Our PepsiCo Revenue Comparison and Campbell Soup Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, PepsiCo’s revenue growth over the next three years is expected to align with Campbell Soup’s. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 2.8% for PepsiCo, compared to a 3.0% CAGR for Campbell Soup, 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. Campbell Soup Is More Profitable

• Campbell Soup’s operating margin of 16.3% for the last twelve months is better than 14.6% for PepsiCo.
• PepsiCo’s operating margin fell to 14.6% in 2022, compared to 16.6% in 2019, before the pandemic. In comparison, Campbell Soup’s operating margin fell to 16.0% in 2022 from 18.2% in 2019.
• Our PepsiCo Operating Income Comparison and Campbell Soup Operating Income Comparison dashboards have more details.
• Looking at financial risk, PepsiCo fares better with its 16% debt as a percentage of equity, lower than 28% for Campbell Soup, while its 6% cash as a percentage of assets is higher than the 1% for the latter, implying that PepsiCo has a better debt position and more cash cushion.

3. The Net of It All

• We see that PepsiCo has demonstrated better revenue growth in recent years and has a better financial position. On the other hand, Campbell Soup is more profitable and is trading at a comparatively lower valuation.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both PepsiCo and Campbell Soup will offer similar returns in the next three years.
• The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 6% for PEP over this period and an 8% expected return for CPB stock, based on Trefis Machine Learning analysis – PepsiCo vs. Campbell Soup – which also provides more details on how we arrive at these numbers.

While PEP and CPB may offer similar returns in the next three years, it is helpful to see how PepsiCo’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Target vs. Amerco.

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.

[1] Month-to-date and year-to-date as of 4/5/2023
[2] Cumulative total returns since the end of 2016

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