Pepsi on track to dethrone Coca-Cola after years

PepsiCo is on its way to becoming the largest beverage company in the US, challenging its rival Coca-Cola, which has held this title uninterruptedly for more than two decades based on market value. Wall Street analysts, including Kaumil Gajrawala from Jefferies, have begun rating PepsiCo with a buy recommendation, describing it as the most resilient company in the sector.

Gajrawala predicts that shares will rise more than 20 percent next year to $203, with its market value reaching approximately $279 billion. This would exceed the approximately $277 billion market value for Coca-Cola following the $64 target price he set for it.

$15 BILLION DIFFERENCE

This call, also made by analysts at Cowen and Goldman Sachs, represents a significant turnaround for the soft drink giants: except for a single day in 2020, PepsiCo's value has not surpassed Coca-Cola's since 2006. As of Monday, Coca-Cola's market value, at approximately $246 billion, is more than $15 billion above PepsiCo's.

FOOD BRANDS MADE THE DIFFERENCE

Coca-Cola has long held the top spot due to its strong brand portfolio and record of sales growth. However, PepsiCo's food business, which includes Lay's potato chips, Doritos, and Quaker oats, has become a significant differentiator. Gajrawala expects PepsiCo's Frito-Lay North America division to continue to outperform its other products. Furthermore, Coca-Cola is strictly a beverage company.

In a note sent to clients, Gajrawala wrote regarding PepsiCo, "Major investments made over the last half-decade are paying off, and we expect returns to accelerate." He highlighted that the company has invested approximately $60 billion over the last five years to make its operations more efficient, increase capacity, and build its brand.

The analyst praised PepsiCo's ability to grow during challenging economic periods, such as after the pandemic. He views PepsiCo as the company most likely among those in the beverage and household products space to grow its earnings 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.

Coca-Cola is not exactly falling out of favor on Wall Street and is, by one measure, a preferred stock. According to data compiled by Bloomberg, its consensus rating, which shows the ratio of buy, hold, and sell recommendations, is 4.6 out of five. PepsiCo's is 4.1 out of five. Both companies' shares have underperformed the S&P 500 Consumer Staples Index, which has fallen about 6 percent this year. PepsiCo has lost about 7 percent of its value, while Coca-Cola has lost about 11 percent. Both companies hit one-year lows in October due to bets that people taking GLP-1 drugs, a class of medication used to treat diabetes and obesity, would reduce their interest in the products.