As unlikely as it may seem, food and beverage giant PepsiCo (NYSE:PEP) has failed to return much to shareholders over the past five years. It pays a decent dividend yield above 3%, but its stock price has been nearly flat over this timeframe. Pepsi recently announced a couple of leadership changes and likely only needs a few tweaks to its business to boost growth a bit, and better compete with its archrival.
Pepsi's Growth Trends
In a recent presentation to investors, Pepsi detailed its growth trends over the past five years. During this period, it grew sales at a compound annual growth rate (CAGR) of 12%. Operating profits improved at a 10% annual rate while earnings per share advanced 9% annually. Over this period, Pepsi returned $29 billion to shareholders and raised its dividend at a 13% CAGR. Pepsi's current dividend yield is 3.1%.

Its snack business, including Lay's, which qualifies as the largest food brand in the world, accounts for just over half of total sales. Archrival Pringles will soon be divested by Procter & Gamble (NYSE:PG) and will go to cereal maker Kellogg (NYSE:K) after accounting improprieties cost Diamond Foods (Nasdaq:DMND) the opportunity to obtain the brand. The beverage business, including the flagship soda, but also Tropicana and Gatorade, accounts for the rest. In a decade, Pepsi anticipates that snack foods will grow to more than 55% of total Pepsi sales.

Total sales reached $66.5 billion last year, and are projected to grow a modest 3% this year to nearly $68 billion. Free cash flow came in at $5.7 billion, or approximately $3.56 per diluted share. Analysts are projecting $4.09 in earnings per share for annual growth of only about 1.5%.

Coke is Beating Pepsi
Archrival Coca Cola (NYSE:KO) has posted slightly higher average sales and earnings growth over the past five years. Specifically, sales are up more than 14% annually while earnings are up more than 11%. This has translated into a much stronger share price performance for Coke; its stock is up around 50% since 2007. In stark contrast, Pepsi's shares are about flat, as is the stock market overall. Industry rival Dr. Pepper Snapple (NYSE:DPS) is the strongest performer in the industry, with a total rise close to 60% since it was spun off from Cadbury to compete on its own.

The Bottom Line
Coke's meteoric stock rise over the past half-decade was also due to valuation expansion. Currently, its stock trades at a forward P/E of close to 18. Pepsi is trading closer to 16 times, below its average multiple of 18 over the past five years.

Overall, Pepsi's discount compared to Coke isn't that high, but it does leave some room for the company to narrow the gap against its key rival. Pepsi might be sensing shareholder unease with its share price performance and recently announced a couple of leadership changes, including appointing a PepsiCo president and new head of the Americas food business. This could provide an added boost, or at least slightly increase earnings growth back to the double digits.

SEE: Monopoly-Like Companies.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Investing

    5 Recession Resistant Industries

    No companies are completely recession proof, but some industries perform better in a weak economy than others.
  4. Investing

    How Airbnb Grew from a SF Loft into a World Leader

    The remarkable story of Airbnb's growth to a company valued at over $25 billion.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!