Which Is A Better Beverage Pick – PepsiCo Stock Or KDP?

PEP: PepsiCo logo

We believe that PepsiCo stock  (NYSE: PEP) and its industry peer Keurig Dr Pepper stock (NYSE: KDP) may offer little returns in the next three years. PEP is trading at 2.9x trailing revenues compared to 3.1x for KDP. Investors have assigned a marginally higher multiple to Keurig Dr Pepper stock due to its slightly better profitability, as discussed below.

If we look at stock returns, PepsiCo, with 3% returns this year, has fared better than Keurig Dr Pepper, down 11%, and both have underperformed the broader S&P 500 index, up 14%. There is more to the comparison, and in the sections below, we discuss the potential returns for PEP and KDP. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of PepsiCo vs. Keurig Dr PepperWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. PepsiCo’s Revenue Growth Is Better

  • PepsiCo’s revenue growth has been better, with an 8.8% average annual growth rate in the last three years, compared to 8.2% for Keurig Dr Pepper.
  • 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.
  • Keurig Dr Pepper did not see any significant impact of the pandemic on its sales, as at-home demand for K-Cups increased due to a sudden surge in at-home consumption.
  • Keurig Dr Pepper has the edge over other beverage companies, including Coca-Cola and PepsiCo, as its coffee segment continues to grow, with people moving away from carbonated drinks and replacing them with beverages like coffee.
  • Our PepsiCo Revenue Comparison and Keurig Dr Pepper Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking at the last twelve month period, Keurig Dr Pepper’s 11.5% sales growth is better than 8.9% for PepsiCo.
  • A challenging macroeconomic environment and a strengthening dollar will likely weigh on PepsiCo’s top-line growth rate in the near term. For Keurig Dr Pepper, Coffee Systems sales are expected to trend higher with the production ramp-up.
  • Looking forward, both companies are expected to see similar revenue growth in the next three years. 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 and 1.6% for Keurig Dr Pepper,  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 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.
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2. Keurig Dr Pepper Is More Profitable

  • PepsiCo’s reported operating margin slid from 15.3% in 2019 to 13.5% in 2022, while that for Keurig Dr Pepper fell from 21.3% to 17.3% over the same period.
  • Looking at the last twelve month period, Keurig Dr Pepper’s operating margin of 10.6% is slightly better than 10.1% for PepsiCo.
  • Our PepsiCo Operating Income Comparison and Keurig Dr Pepper 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 27% for Keurig Dr Pepper, and its 5% cash as a percentage of assets is also higher than <1% for the latter, implying that PEP has a better debt position and more cash cushion.

3. The Net of It All

  • We see that PepsiCo has demonstrated better revenue growth and financial position. On the other hand, Keurig Dr Pepper is more profitable.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both will offer little returns in the next three years and can be avoided for better picks in the broader markets. Our Better Bet Than PEP Stock dashboard offers superior choices over PEP in the S&P500, including UNH, and V, among others.
  • If we compare the current valuation multiples to the historical averages, KDP fares better. PepsiCo’s stock trades at 2.9x trailing revenues compared to its last three-year average of 3.2x, and Keurig Dr Pepper stock trades at 3.1x trailing revenues vs. the last three-year average of 4.1x.
  • Our PepsiCo (PEP) Valuation Ratios Comparison and Keurig Dr Pepper (KDP) Valuation Ratios Comparison have more details.
  • 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 PepsiCo over this period vs. an 8% expected return for Keurig Dr Pepper stock, based on Trefis Machine Learning analysis – PepsiCo-vs. Keurig Dr Pepper– which also provides more details on how we arrive at these numbers.

While PEP and KDP stock may offer little 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.

With higher inflation and the Fed raising interest rates, among other factors, PEP stock has seen just a 3% rise this year. Can it drop from here? See how low PepsiCo stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

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.

Returns Jun 2023
MTD [1]
YTD [1]
Total [2]
PEP Return 2% 3% 77%
KDP Return 2% -11% -65%
S&P 500 Return 4% 14% 95%
Trefis Multi-Strategy Portfolio 6% 16% 262%

[1] Month-to-date and year-to-date as of 6/22/2023
[2] Cumulative total returns since the end of 2016

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