Several cans of Coca-Cola and Pepsi-Cola.AP
PepsiCo INC. It is on track to become the largest beverage company in the United States by market value, surpassing its major rival Coca-Cola Co, which has held the position continuously for nearly two decades.
That’s what Wall Street analysts say, including Jefferies’ Kaumil Gajrawala, who began coverage of PepsiCo with a buy rating, saying it’s the most resilient company in the industry. Gajrawala predicts the stock will rise more than 20% next year to $203, giving it a market value of around $279 billion. That would exceed the market cap of about $277 billion implied in his $64 target for Coca-Cola, which he estimates will be maintained.
The report, confirmed by analysts at Cowen and Goldma Sachs, would represent a sea change for the soft drink giants: Apart from a single day in 2020, PepsiCo’s value has not eclipsed that of Coca-Cola since 2006 placed. As of Monday: about 246 billion US dollars. Coca-Cola’s market capitalization is more than 15 billion US dollars higher than that of its competitor.
Coca-Cola has long held the top spot, thanks in part to its strong brand portfolio and record-breaking sales growth. But PepsiCo’s grocery stores, including Lay’s potato chips, Doritos and Quaker Oatmeal, have become a key differentiator. Gajrawala expects PepsiCo’s Frito-Lay North America unit to continue to outperform its other products. Coca-Cola is now exclusively a beverage company.
For PepsiCo, “the last decade’s heavy investments are paying off and we expect returns to accelerate,” Gajrawala wrote in a note to clients. He emphasized that the company has invested around $60 billion over the past five years to make operations more efficient, increase capacity and expand its brand. Likewise, the analyst highlighted PepsiCo’s ability to grow in difficult economic times, such as after the pandemic. The Company believes that the Beverages and Household Products segment is most likely to achieve high single-digit or better sales over the next three years.
Meanwhile, he sees limited room for growth for Coca-Cola at its current valuation. A tax dispute with the US Treasury Department is also clouding the outlook. The company is not losing favor on Wall Street and is, on average, the preferred stock. The consensus rating – an indicator of the ratio of buy, hold and sell recommendations – is 4.6 out of 5, data compiled by Bloomberg show. PepsiCo has 4.1 out of 5.
Both stocks have tracked the performance of the S&P 500 consumer sector index, which is down about 6% this year. PepsiCo is down about 7%, while Coca-Cola is down about 11%. Both hit their lowest levels in a year in October amid speculation that people taking drugs called GLP-1 to treat diabetes and obesity could reduce binge eating.
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