Will PepsiCo's Focus on Premium Drinks Drive the Next Leg of Growth?

PepsiCo, Inc. PEP is sharpening its competitive edge in the beverage category by doubling down on premium and functional drinks, aiming to ride the wave of evolving consumer preferences. As demand shifts toward health-conscious and value-added offerings, the company is repositioning its beverage portfolio beyond traditional colas. In the second-quarter 2025 earnings call, management emphasized key growth areas such as no-sugar colas, functional hydration, energy drinks and upcoming innovations in liquid protein. These investments are not just reactionary; they reflect a longer-term view of where the beverage market is headed and how PepsiCo plans to remain a dominant force.

The success with Gatorade and the strong performance of Propel have demonstrated PepsiCo's ability to scale health-focused beverages. Premium hydration is becoming a growth pillar, with liquid protein launches expected in late 2025 and early 2026. These products are designed to deliver taste, natural ingredients and functionality key differentiators in the growing wellness category. The company’s move toward cleaner formulations and no-artificial-ingredient beverages signals a broader portfolio shift in line with evolving consumer expectations and regulatory trends.

PepsiCo is also leveraging strategic partnerships and distribution to support its premium drink strategy. Its alliance with Celsius in the energy drinks space, combined with a strong away-from-home presence, enhances its reach and margin potential. The high-growth, high-margin premium drinks segment not only boosts revenue per unit but also strengthens brand perception. If the company executes effectively and consumer adoption continues, this beverage pivot could unlock the next phase of sustainable growth across its North American and international markets.

PEP’s Competitors: KO & KDP’s Smart Moves

While PepsiCo continues to gain traction with its zero-sugar beverages, it faces strong competition from rivals like The Coca-Cola Company KO and Keurig Dr Pepper KDP, both of which are aggressively investing in similar consumer trends.

Coca-Cola is actively evolving its beverage portfolio to stay ahead in the premium and health-conscious drinks space. The company has placed strong emphasis on zero-sugar variants, with Coca-Cola Zero Sugar continuing to gain global traction. It has also been expanding its footprint in functional beverages through investments in brands like BODYARMOR and Topo Chico. Coca-Cola’s digital-first marketing and targeted innovations, such as limited-edition flavors and sustainability-focused packaging, have helped drive engagement with younger consumers. These moves reinforce Coca-Cola's strategy to modernize its offerings while maintaining its leadership in the global beverage market.

KDP is making strategic advancements to boost its position in the premium beverage category by expanding both its cold and hot beverage portfolios. The company’s partnerships with brands like Polar Seltzer and A-Shoc energy drinks, along with its ownership in rising health-oriented labels such as Core Hydration and Bai, highlight its commitment to wellness-focused innovation. KDP is also leveraging its direct-to-consumer platforms and Keurig ecosystem to deepen consumer engagement. With a balanced portfolio and agile distribution, KDP is carving out growth opportunities across both legacy and emerging beverage segments.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 8.3% year to date against the industry’s growth of 4.6%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.33X, slightly below the industry’s average of 17.53X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 1.9%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.3%. The company’s EPS estimates for 2025 and 2026 have moved northward in the past 30 days.

PEP stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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