- Large investments seen paying off for soft drinks giant
- PepsiCo ‘most durable business’ in its coverage, analysts say
- Coca-Cola facing looming $24 billion tax settlement
Better growth, more robust and higher share price upside. That’s how Jefferies’ analysts see PepsiCo (PEP:NASDAQ) versus its great rival Coca-Cola (KO:NYSE) in its comparison of the soft drinks giants in an initiation note issued to clients.
‘Hefty investments over the last half-decade are yielding results, and we expect returns to accelerate,’ said the analysts. ‘Frito is strong getting stronger, and beverage margins are set to expand,’ the note added, before stating that ‘we expect PepsiCo shares to outperform in risk-off environments, and long-term by compounding earnings ahead of peers.’
Jefferies believes that PepsiCo has the ‘most durable business’ in its coverage, with a far wider spread of brands that go far beyond its namesake fizzy pop, including Quaker Oats, Dorritos and Nobby’s Nuts. In belt-tightened times, that says Jefferies, means PepsiCo is likely to growth earnings faster than its great rival, anticipating earnings growth in the high-single digits or better over the next three years.
While Jefferies remains a fan of Coca-Cola’s investment case, it believes that at the current valuation, the upside is limited ‘as the looming tax settlement ($24 billion of equity at risk) may put a lid on shares, irrespective of the strength of the fundamentals.’
Both stocks have struggled in the latter part of this year as investors embraced higher growth investment ideas more readily. PepsiCo stock is off around 6.5% year-to-date, versus Coke’s rough 9.5% decline.
