Which Is A Better Pick – PepsiCo Stock Or Amgen?

PEP: PepsiCo logo

We believe that PepsiCo stock  (NYSE: PEP) is a better pick over Amgen stock (NASDAQ: AMGN). Although these companies are from different sectors, we compare them because they have a similar operating income of $9 billion to $12 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.

Interestingly, PepsiCo and Amgen both have had a Sharpe Ratio of 0.4 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Looking at stock returns, AMGN has fared slightly better with 3% gains this year compared to a 3% decline for PEP stock. However, both stocks have underperformed the broader S&P500 index, up 13%. There is more to the comparison, and in the sections below, we discuss why we believe PEP will offer better returns over AMGN in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in this analysis.

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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 4.1% for Amgen.
  • 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 of homes while at-home demand has also been strong.
  • Amgen’s expansion of some of its drugs, including Prolia, Otezla, Tezspire, and Repatha, is driving its revenue growth, while some of the older drugs, such as Enbrel and Neulasta, are seeing a y-o-y decline in sales.
  • If we look at the last twelve-month period revenues, PepsiCo has fared better with 10.1% sales growth, while Amgen saw its revenue rise by 0.8%.
  • Our PepsiCo Revenue Comparison and Amgen Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, revenue for both PepsiCo and Amgen is expected to grow at a low single-digit average annual rate.

2. Amgen Is More Profitable

  • PepsiCo’s reported operating margin slid from 15.3% in 2019 to 13.5% in 2022, while Amgen’s operating margin declined from 41.4% to 36.3% over this period.
  • Looking at the last twelve-month period, Amgen’s operating margin of 35.7% is better than 11.7% for PepsiCo.
  • Our PepsiCo Operating Income Comparison and Amgen Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. While PepsiCo’s 18% debt as a percentage of equity is lower than 43% for Amgen, its 7% cash as a percentage of assets is lower than 38% for the latter, implying that PepsiCo has a better debt position, but Amgen has more cash cushion.

3. The Net of It All

  • We see that PepsiCo has demonstrated better revenue growth, has a better debt position, and trades at a comparatively lower valuation multiple of 2.7x revenues vs. 5.4x for Amgen. On the other hand, Amgen is more profitable and has more cash cushion.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe PepsiCo is a better pick.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 8% for PepsiCo over this period vs. a -1% expected return for Amgen, based on Trefis Machine Learning analysis – PepsiCo vs. Amgen– which also provides more details on how we arrive at these numbers.
  • Note that Amgen has a few drugs nearing patent expiry, while some drugs face increased competition. For perspective, Enbrel – the rheumatoid arthritis and plaque psoriasis drug – is Amgen’s top-selling product. However, the company has seen the drug’s sales fall to $4.1 billion in 2022, compared to $5.4 billion in 2017. Although Enbrel’s market exclusivity is still far out (2029), it faces increased competition from other companies’ drugs, including AbbVie’s Rinvoq, Pfizer’s Zeljanz, and Johnson & Johnson’s Stelara.
  • Even if we compare the current valuation multiple to the historical average, PepsiCo fares slightly better. Pepsi stock trades at 2.7x revenues, compared to its last five-year average of 3.0x, while Amgen stock trades at 5.4x trailing revenues vs. the last five-year average of 5.1x.
  • Our PepsiCo (PEP) Valuation Ratios Comparison and Amgen (AMGN) Valuation Ratios Comparison have more details.
  • Although we believe PepsiCo is a better pick over Amgen, we acknowledge that 8% returns for PEP isn’t great. There are better opportunities over PEP stock. Our Better Bets Than PEP Stock dashboard details S&P500 stocks that can offer better returns in the next three years.

Stock Return Forecast - PEP vs. AMGN

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

 Returns Sep 2023
MTD [1]
YTD [1]
Total [2]
 PEP Return -1% -3% 68%
 AMGN Return 5% 3% 84%
 S&P 500 Return -4% 13% 93%
 Trefis Reinforced Value Portfolio -6% 23% 534%

[1] Month-to-date and year-to-date as of 9/22/2023
[2] Cumulative total returns since the end of 2016

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