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The Valuations of Major Nonalcoholic Beverage Companies

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Jan. 29 2018, Updated 12:35 p.m. ET

Current valuation

Coca-Cola (KO) is currently trading at a higher valuation multiple than PepsiCo (PEP) and Dr Pepper Snapple (DPS) but lower than the leading energy drink maker Monster Beverage (MNST). As of January 24, 2018, Coca-Cola was trading at a 12-month forward PE (price-to-earnings) ratio of 24.2x. PepsiCo, Dr Pepper Snapple, and Monster Beverage were trading at 12-month forward PE ratios of 21.9x, 19.4x, and 39.0x, respectively. These major nonalcoholic beverage companies are trading at premium valuations compared to the S&P 500 Index with a forward PE ratio of 20.2x.

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Movement since 3Q17 results

Coca-Cola’s valuation multiple has risen 2.1% since the announcement of its 3Q17 results in October 2017. It beat analysts’ sales and earnings expectations in 3Q17. However, its top line continued to decline for the tenth straight quarter. PepsiCo’s valuation multiple has risen 9.1% since the company announced its 3Q17 results on October 4, 2017. It exceeded analysts’ earnings expectations, but its sales lagged analysts’ estimate despite increasing 1.3% on a year-over-year basis.

Let’s see what analysts expect for these major nonalcoholic beverage companies.

Analysts’ expectations

Analysts expect Coca-Cola’s revenue to decline 15.8% to $35.2 billion in 2017. The company’s adjusted EPS (earnings per share) is expected to remain almost flat at $1.91 in 2017. Currently, analysts expect revenue and adjusted EPS to decline 12.1% and 5.4%, respectively, in 2018.

PepsiCo’s revenue and adjusted EPS are expected to rise 1% to $63.4 billion and 7.6% to $5.22, respectively, in 2017. For 2018, analysts expect PepsiCo’s revenue and adjusted EPS to rise 3.5% and 8.6%, respectively.

Innovation, strong marketing efforts, and an extensive geographic presence are factors that are expected to work in favor of these soda behemoths. However, competition from healthier beverage products could continue to put pressure on their performances.

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