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. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  2. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  3. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  6. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  7. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  8. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  9. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
  10. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
RELATED TERMS
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
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!