Is Coke Worth More Than Pepsi?

Is Coke Worth More Than Pepsi?


Comparative Financial Analysis of Coca-Cola Company vs. PepsiCo, Inc.

Pepsi-Co. and Coca-Cola are the key companies dominating the carbonated soft drink industry historically. Firstly, the cold beverage industry is a good investment opportunity since it has delivered constantly increasing dividends over the years. Holding one of these giants in the portfolio is ideal for income-focused investors. However, after conducting a SWOT analysis as well as comparing their financials, Pepsi-Co seems to be a better investment opportunity. 

While both businesses are similar in terms of industry, ideal consumers, and flagship products, Coca-Cola has made efforts to dominate the beverage industry almost exclusively. Unlike Coca-Cola’s more focused business model, PepsiCo has a highly diversified product portfolio, both within the beverage industry and in other industries like consumer packaged goods industry. Pepsi-Co has been able to acquire complementary products in both the food industry and the beverage industry. Hence, Pepsi-Co has created a scenario that may induce a consumer to purchase a second product the company also owns. Moreover, ever since the on-going global pandemic wherein restaurants were under pressure and closing, this dynamic hurt Coca-Cola more than Pepsi-Co due to its less diversified portfolio.        

A threat for both companies is market saturation.

As a result of few emerging markets that remain untapped. Hence, both companies have strongly entered the energy drink category as the American market grows more concerned about their sugar and chemical intake. Taking it a step forward, Pepsi-Co sees the opportunity to dominate the vegan trend in consumer tastes and targets early 2022 to roll out products from a joint venture with Beyond Meat. This also helps Pepsi work toward its sustainability and health goals for its portfolio.

In terms of profitability margins, both companies have been able to increase their margins over the past 5 years. Coca-Cola has better profitability margin growth and in 2020, has a higher net profit margin as well at 23.53%. Compared to Pepsi-Co’s 10.20%. Still, despite Coca-Cola having higher overall margins, due to lower capital efficiency and a lower debt/equity ratio. Pepsi-Co has a higher ROE of 50.49% (compared to Coca-Cola’s ROE of 36.66%). Also, another key element is revenue. And even though Coca-Cola’s net income margin has increased consistently over recent years. PepsiCo’s revenue base has been almost double that of Coca-Cola.

Both companies, Pepsi-Co and Coca-Cola have similar Return on Assets (8.37% and 8.95% respectively) and Return on Capital Employed (15.98% and 16.94% respectively).

Both of these indicate that the companies are managing their available resources and assets well and generating value. However when looking at liquidity, Pepsi-Co has an edge over Coca-Cola. Pepsi-Co has a negative Cash Conversion Cycle, which means that it’s getting paid by their customers long before they pay their suppliers, and the business has greater liquidity. As a result, the company isn’t operating cash to grow. 

Coca-Cola has a higher brand value compared to Pepsi-Co as it remains the most chosen fast-moving consumer goods (FMCG). It is valued at $63.37 Billion, ranking in the fifth place in its study of the most valuable brands worldwide in 2019 compared to $20.49 Billion for Pepsi. 

However, in lieu of the pandemic, the economy has become volatile and investing in a safer stock is promising of consistent returns. When looking at a one year drawdown period. Coca-Cola saw more volatility than Pepsi-Co where it recorded higher MDD values during recession periods. Even though both companies experienced lower volatility than the overall market. Pepsi-Co appears to be a safer investment than Coca-Cola and the market.

In conclusion, both are defensive stocks and are stable compared to the market portfolio. Still, Pepsi’s stock is generally less volatile. And the company has greater product diversity between beverage and food, allowing flexibility in reaching larger markets.  We expect Pepsi-Co to perform better than Coca-Cola on a total return basis in the coming period.

Written by Mitanshi Shah, NYU Stern School of Business

Is Coke Worth More Than Pepsi?


source for cover image:

Coca Cola vs Pepsi | Wallpaper Hungama