Will PepsiCo Rebound Vs. Coca-Cola? What To Expect From Tomorrow’s Report

Before the opening bell on Thursday, PepsiCo Inc (PEP) will report its FQ2 ’15 results. Wall Street is predicting EPS to come in at $1.23, having underestimated EPS every quarter for the past 8 quarters. The Estimize consensus is projecting a slightly higher EPS of $1.25. The Estimize community also forecasts a higher revenue number of $15.931B compared to Wall Street’s target of $15.813B.

 

PepsiCo is a global player in the food and beverage industry and is headquartered in New York. PepsiCo has an impressive product mix which contains many household names including but not limited to Pepsi, Pepsi Max, 7UP, Doritos, Tostitos and Cheetos. Its wide range of consumer products has helped PepsiCo compete against its giant rival Coca-Cola. Although less recognizable as Coca-Cola, PepsiCo is more diversified and less leveraged to the soft drink industry which may benefit PepsiCo in the long term.

Competition from its rival is not PepsiCo’s only concern. The carbonated soft drink industry as a whole has experienced a significant drop in volumes over the past decade. It has been recently reported that U.S. per capita consumption of soda drinks has recently reached its lowest level since 1986. PepsiCo’s strong financial position has allowed the company to explore alternative growth strategies in areas such as sports drinks and healthy snacks and beverages.

Currently, PepsiCo is trading on a PE Ratio (TTM) of 22.39X earnings compared to its ten year average of 18.74X.

Despite PepsiCo’s stock experiencing some PE expansion recently, the stock has underperformed its key competitor Coca-Cola (KO). The chart below represents the PE Ratio (TTM) of PEP divided by KO’s PE Ratio (TTM). Any value below 1 tells investors that PepsiCo is trading at a discount relative to Coca-Cola on a PE Ratio basis. Due to its downward sloping nature, PepsiCo has been becoming gradually cheaper than its rival over the past 3 years. Investors will be interested in learning how management plan to reverse this recent trend and its strategy moving forward.

The long term success of PepsiCo will likely depend on the company’s ability to further diversify its product mix and increase its exposure to noncarbonated health drinks and healthy snacks.

(Photo Credit: Sean Loyless)