Comparing valuation multiples
Soda giant Coca-Cola (KO) is trading at a higher valuation multiple compared to PepsiCo. As of January 23, Coca-Cola and PepsiCo were trading at 12-month forward PE ratios of 22.3x and 19.2x, respectively. Both companies are trading at a higher valuation multiple than the S&P 500 Index’s 12-month forward PE of 15.7x.
Analysts expect Coca-Cola’s revenue to decline 10% to $31.9 billion in 2018 due to the impact of divestitures of bottling territories. The company’s adjusted EPS is expected to rise 9.4% to $2.09 in 2018 as a result of strong margins and lower taxes. Analysts currently expect Coca-Cola’s revenue to grow 4.4% in 2019 and adjusted EPS to increase 6.2%.
PepsiCo’s adjusted EPS is expected to rise 1.9% to $64.7 billion in 2018. The company’s 2018 adjusted EPS is expected to grow 8.2% to $5.66, driven by increased revenue and lower taxes. The company’s 2019 adjusted EPS is expected to grow 3.7% on revenue growth of 2.8%.
The 2018 adjusted EPS of Coca-Cola and PepsiCo is also expected to benefit from share repurchases. Coca-Cola made net share repurchases of $707 million in the first three quarters of 2018, with an intention to make net share repurchases of $1 billion in the full-year 2018. In October, PepsiCo reaffirmed its intent to buy back $2.0 billion of common stock in full-year 2018.
As we discussed previously in this series, Coca-Cola and PepsiCo are looking to expand in better beverage categories, like functional or plant-based beverages and ready-to-drink coffee and tea, by way of innovation and strategic deals.