PepsiCo (PEP) shares spiked Thursday after its solid fourth-quarter results also came with the announcement that it will raise its dividend and increase its share repurchase plan.
Investors may be wondering if a similar scenario could be in store for Coca-Cola (KO) and if it’s time to buy KO stock before the company’s Q4 report on Tuesday, February 14.
Let’s take a look at Coca-Cola stock following Pepsi’s Q4 report to see if it might be worth buying.
Brief Overview
Coca-Cola and Pepsi’s business operations are a bit different. Both companies’ core business models revolve around beverage production and distribution, Pepsi also includes food and snack production.
This largely reflects the price difference between the two stocks as shown in the chart below and why Pepsi’s earnings and revenue are significantly higher than Coca-Cola. With that being said, both Coca-Cola and Pepsi are viable consumer staples investments, and monitoring their growth and valuation mostly differentiates which company may be more suitable in investors’ portfolios.
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Pepsi Q4 Review
There could be increased optimism about Coca-Cola stock prior to earnings, largely due to Pepsi’s Q4 report that saw the company beat on its top and bottom line. Pepsi posted quarterly EPS of $1.67 a share topping estimates by 1.82%. Sales came in at $28 billion, which was a 4% surprise.
Year over year, Q4 earnings were up 9% with sales up 11% from the prior-year quarter. This was despite Pepsi seeing lower sales volume, contrary to net sales increasing. Specifically, among Pepsi’s Quaker Foods North America, sales volume fell 7%.
Pepsi’s net income was also down to $518 million compared to $1.32 billion in Q4 2021. Still, the company did see stronger demand for Pepsi Zero Sugar, with sales volume up 26% as the product looks to rival Coke Zero.
Coca-Cola Q4 Preview
Looking at Coca-Cola, Q4 earnings are projected at $0.45 per share, which would be on par with Q4 2021. Sales for the quarter are expected to be $10.01 billion, up 6% from the prior year quarter.
This would round out Coca-Cola’s Fiscal 2022 with earnings up 7% to $2.48 a share. On the top line, sales would be up 11% for FY22 to $42.86 billion compared to $38.66 billion in 2021.
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Growth & Outlook
After wrapping up fiscal 2022, Coca-Cola’s FY23 earnings are forecasted to rise 3% to $2.55 per share with earnings estimate revisions slightly higher over the last quarter. Sales are projected to be up 3% to $44.22 billion. More impressive, Fiscal 2023 would represent 38% growth over the last five years with 2018 sales at $31.85 billion.
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In comparison, Pepsi’s earnings are expected to jump 7% in FY23 at $7.25 per share with earnings estimates remaining unchanged. Sales are forecasted to rise 3% in FY23 to $88.27 billion. Fiscal 2023 sales would be a 36% increase from five years ago, with 2018 sales at $64.66 billion.
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Performance & Valuation
Over the last year, Coca-Cola stock is down -3% to underperform Pepsi’s +3% but both have topped the S&P 500’s -10%. In the last decade, Pepsi’s +213% total return which includes dividends has also topped Coca-Cola’s +118% but trailed the benchmark.
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The valuation of both Coca-Cola and Pepsi stock is very similar. Coca-Cola stock trades just under $60 a share and 23.4X forward earnings which is roughly on par with the industry average. This is 18% below its decade high of 28.5X and just above the median of 22.9X.
Pivoting to Pepsi, shares of PEP trade at $172 per share and 23.6X forward earnings. This is 15% below its decade long high of 27.8X and 7% above the median of 21.8X.
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Dividends
In regards to passive income, both Coca-Cola and Pepsi are Dividend Kings raising their payout for more than 50 consecutive years. To that note, Coca-Cola’s 2.95% dividend yield and annual increases (60 years) top Pepsi at the moment although the latter recently announced it will increase its dividend by 10% along with $1 billion worth of buybacks.
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Takeaway
Leading up to its earnings next week, Coca-Cola stock currently sports a Zack Rank #2 (Buy) with Pepsi landing a Zacks Rank #3 (Hold) at the moment. This is mostly attributed to Coca-Cola’s earnings estimates trending higher for fiscal 2023 while Pepsi’s FY23 estimates have remained unchanged although analysts haven’t had the time to offer updates after the company's Q4 report.
Furthermore, Pepsi’s solid Q4 report may very well be an indication that Coca-Cola may give a positive quarterly report as well. Coca-Cola could also boost its dividend and offer buybacks to support shareholders. Ultimately, KO stock may be a more intriguing investment than PEP even though their fundamentals are very similar but Coca-Cola shares come with a more affordable price tag.
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