This is why PepsiCo stock is a better choice than its peers?


We think PepsiCo stock (NYSE: PEP) is currently a better choice than Procter & Gamble Stocks (NYSE: PG) in the defensive consumer sector, given the brighter outlook and relatively lower valuation. PEP shares are trading at 2.9x trailing earnings, compared to 4.5x for P&G. We believe this valuation gap will narrow in favor of PepsiCo
given the superior sales growth, as discussed below.

Looking at stock returns, PEP, with a 1% gain over the last 12 months, has outperformed -5% returns for P&G and the broader S&P500 index, down 15%. There’s more to the equation, and in the sections below we’ll discuss why we think PEP stocks will provide better returns than PG over the next three years. We compare a whole range of factors, such as historical revenue growth, returns and valuation, in an interactive dashboard analysis from PepsiCo vs. Procter & Gamble

: Which stock is a better bet? Parts of the analysis are summarized below.

1. PepsiCo’s sales growth is better

  • Both companies have posted revenue growth over the past twelve months. Still, PepsiCo’s 9.1% sales growth is better than P&G’s 4.3%.
  • Even looking over a longer period of time, PepsiCo is doing better. Revenue grew at an average growth rate of 7.2% to $79.5 billion in 2021, compared to $64.7 billion in 2018, while P&G revenue grew at an average rate of 5.8% to $80,000. 2 billion in fiscal 2022 (fiscal ends in June), compared to $67.7 billion in 2019.
  • Strong pricing trends have driven PepsiCo’s revenue growth in recent quarters.
  • After Covid-19-induced lockdowns, the recovery has been swift for the beverage giant, with more people venturing out to attend events, travel and dine.
  • Looking ahead, a challenging macroeconomic environment and a strengthening dollar are likely to weigh on the company’s revenue growth in the near term.
  • P&G’s largest segment is Fabric & Home Care, accounting for approximately 35% of the company’s sales. It has also seen a steady increase in sales in recent years. In fiscal year 2022, the company reported a 5% increase in total sales, driven by 2% unit volume growth.
  • Us PepsiCo Earnings Comparison and Procter & Gamble Income Comparison dashboards provide more insight into the turnover of the companies.
  • Looking ahead, PepsiCo’s revenue growth over the next three years is expected to be slightly better than P&G’s. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 2.8% for PepsiCo, compared to a CAGR of 1.7% for P&G, based on Trefis Machine Learning analysis.
  • In fact, P&G’s guidance points to a revenue decline of between 1% and 3% in fiscal 2023, and revenue is likely to remain at its fiscal 2022 level of $5.81 as it braces for a $3.9 headwind billion due to forex and higher costs.
  • Please note that we have different methodologies for companies negatively impacted by Covid and those not or positively impacted by Covid when forecasting future earnings. For businesses negatively impacted by Covid, we factor in the quarterly revenue recovery trajectory to predict recovery to pre-Covid revenue percentage. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies that show positive sales growth during Covid, we consider annual average growth pre-Covid with a certain weighting for growth during Covid and the last 12 months.

2. Procter & Gamble is more profitable

  • PepsiCo’s operating margin declined to 14.7% in 2021, compared to 16.1% in 2018. By comparison, P&G’s operating margin increased from 8.8% in fiscal 2019 to 22.7% in fiscal 2022.
  • Us PepsiCo Operating Income Comparison and Business Income Comparison from Procter & Gamble dashboards have more details.
  • Looking at financial risk, PepsiCo’s debt as a percentage of equity of 33.5% is higher than 9.1% for P&G, while the 7.1% cash as a percentage of assets is higher than the 5.8 % for the latter, implying that P&G has a better debt position, but PepsiCo has more cash buffer.

3. The network of everything

  • We see that PepsiCo has shown better revenue growth, has a better cash buffer and is available at a relatively lower valuation. On the other hand, P&G is more profitable and has a better debt position. Judging by historical data, PEP stock appears to be a better bet between the two.
  • Looking at the outlook now, with a P/S basis, due to the high swings in P/E and P/EBIT, we still believe that PepsiCo is currently the better choice of the two.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 1% for P&G over this period and an expected return of 7% for PepsiCo shares, implying that investors probably better off buying PEP over PG, based on Trefis Machine Learning analysis – PepsiCo vs. Procter & Gamble — which also gives more details on how we arrive at these numbers.

While PEP may outperform PG over the next three years, it’s useful to see how PepsiCo’s colleagues rate on metrics that matter. Other valuable comparisons for companies in different industries can be found at Peer comparisons.

In addition, the Covid-19 crisis has led to many price discontinuities, which can provide attractive trading opportunities. For example, you’d be surprised how counterintuitive stock valuation is Target vs. Amerco.

What if you’re looking for a more balanced portfolio instead? Us high-quality portfolio and multi-strategy portfolio have consistently beaten the market since the end of 2016.

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