PepsiCo INC. It is on track to be the largest beverage company in the United States by market value, surpassing its great rival, Coca-Cola Co, which has held the position uninterruptedly for almost two decades.
That’s according to Wall Street analysts, including Kaumil Gajrawala at Jefferies, who began coverage of PepsiCo with a buy rating saying it was the most resilient business in the sector. Gajrawala projects that the shares will rise more than 20% over the next year to $203 (about 189 euros), for a market value of around $279 billion. That would exceed the market capitalization, of about $277 billion, implicit in his $64 target for Coca-Cola, which he rates as maintained.
The report, echoed by analysts at Cowen and Goldma Sachs, would mark a telling shift for the soft drink giants: Aside from a single day in 2020, PepsiCo’s value hasn’t eclipsed Coca-Cola since 2006. Worth approximately $246 billion, as of Monday, Coca-Cola’s market capitalization is more than $15 billion higher than its rival.
Coca-Cola has long held the top spot in part because of its strong brand portfolio and record sales growth. But PepsiCo’s food businesses, including Lay’s potato chips, Doritos and Quaker oatmeal, have become a key differentiator. Gajrawala expects that PepsiCo’s Frito-Lay North America business unit will continue to outperform its other products. Meanwhile, Coca-Cola is exclusively a beverage company.
For PepsiCo, “heavy investments over the past decade are paying off and we expect returns to accelerate,” Gajrawala wrote in a note to clients. He noted that the company has invested around $60 billion over the past five years to make operations more efficient, increase capacity and build its brand. Likewise, the analyst highlighted PepsiCo’s ability to grow during difficult economic periods, such as after the pandemic. He sees it as the most likely company in beverage and home products to grow revenue in the high single-digit range or better over the next three years.
Meanwhile, he sees limited room for Coca-Cola to advance at its current valuation. A tax dispute with the US treasury also clouds his prospects. The company is not losing favor on Wall Street and, according to the average, it is the preferred stock. Its consensus rating – an indicator of the ratio of buy, hold and sell recommendations – is 4.6 out of 5, data compiled by Bloomberg show. PepsiCo has a 4.1 out of 5.
Both stocks have tracked the performance of the S&P 500 consumer sector index, which is down about 6% this year. PepsiCo is down about 7%, while Coca-Cola is down about 11%. Both hit one-year lows in October amid speculation that people taking drugs called GLP-1, used to treat diabetes and obesity, will reduce binge eating.
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