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. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  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 >>
COMPANIES IN THIS ARTICLE
Trading Center