PepsiCo, Inc. (PEP) vs. The Coca-Cola Company (KO): A Bull Case Theory

We came across a bullish thesis on PepsiCo, Inc. (PEP) on Substack by Charts&Companies. In this article, we will summarize the bulls’ thesis on PEP. PepsiCo, Inc. (PEP)'s share was trading at $131.79 as of May 19^th. PEP’s trailing and forward P/E were 19.38 and 16.61 respectively according to Yahoo Finance.

The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP), two titans in the global beverage industry, provide a revealing case study in relative valuation. Both companies boast identical total assets of $101.7 billion, yet they diverge across capital structure, diversification, and growth dynamics. Coca-Cola enjoys stronger shareholder equity and lower current liabilities but trades at a premium, reflected in its $296 billion market cap and elevated P/B ratio of 10.68, compared to PepsiCo’s $180 billion market cap and 9.27 P/B.

While The Coca-Cola Company (KO) concentrates almost exclusively on beverages—with a 30% operating margin and even higher regional profitability—PepsiCo’s split between beverages and its high-margin snack segment (24.7%) offers a more balanced and resilient business model, especially when compared to its beverage margins of just 7.8%. On the income front, PepsiCo’s 4% dividend yield edges out Coca-Cola’s 3%, appealing more to income-oriented investors, while comparable book-value growth favors PepsiCo’s stronger capital efficiency. KO’s higher P/S ratio of 6.63 contrasts with its low 2.2% sales growth, whereas PEP, with a 1.99 P/S, offers more value relative to its 6.5% historical CAGR. Coca-Cola’s bottling divestitures have capped top-line growth while inflating valuation multiples. Meanwhile, PepsiCo’s currently flat sales and depressed stock price suggest an undervalued asset.

The earnings gap is stark: The Coca-Cola Company (KO) trades at a P/E of 28.8 with flat earnings, generating a lofty PEG over 19, while PEP’s 5.7% EPS CAGR and 19.41 P/E yield a more favorable PEG of 3.4. Adjusted free cash flow also favors PepsiCo, Inc. (PEP), with a 9% five-year CAGR versus KO’s 5%, solidifying PEP as the more attractively priced and fundamentally sound investment. Curious how Coca-Cola stacks up on its own? Click here to read a detailed KO breakdown we found worth sharing.

PepsiCo, Inc. (PEP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 69 hedge fund portfolios held PEP at the end of the fourth quarter which was 58 in the previous quarter. While we acknowledge the risk and potential of PEP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PEP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.