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.

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

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