Peer comparison

On June 20, PepsiCo (PEP) was trading at 12-month forward PE ratio of 23.8x. In comparison, the Coca-Cola Company (KO), Keurig Dr Pepper (KDP), and Monster Beverage (MNST) were trading at 12-month forward PEs of 23.5x, 23.7x, and 29.1x, respectively.

PepsiCo’s 12-month forward PE has risen 8.3% since the company’s announcement of its first-quarter results. PepsiCo’s first-quarter adjusted EPS rose 1.0% to $0.97 and came in ahead of analysts’ estimate of $0.92. Despite its impressive results, PepsiCo kept its 2019 guidance unchanged. The company expects its 2019 EPS to come in at $5.50, which implies a fall of ~3.0%. This guidance is based on an organic revenue growth forecast of 4% for 2019.

Gauging PepsiCo’s Valuation Against Its Peers’

PepsiCo experienced strong organic revenue growth of 5.2% in the first quarter driven mainly by the performance of its Frito-Lay North America segment. However, the company doesn’t expect this impressive rate of growth to continue in the remainder of 2019.

Comparing growth rates

Analysts expect PepsiCo’s adjusted EPS to fall 2.5% to $5.52 in 2019 and its revenue to rise 2.9% to $66.5 billion. Analysts expect soda giant Coca-Cola’s adjusted EPS to rise 1.0% to $2.10 and its revenue to rise 9.1% to $34.7 billion.

Keurig Dr Pepper’s sales are expected to rise 1.6% to $11.2 billion, and its adjusted EPS are expected to rise 17.3% to $1.22 this year. Leading energy drink maker Monster Beverage is expected to deliver adjusted EPS of $2.07, reflecting a rise of 15.0%. Analysts expect Monster Beverage’s sales to rise 10.9% to $4.2 billion in 2019.

PepsiCo’s valuation looks expensive given its expected earnings growth rate compared to its peers’. Overall, higher input costs and currency headwinds are expected to put pressure on the performances of PepsiCo and its peers this year. The general shift to healthier beverages and evolving consumer tastes will continue to influence the future growth of PepsiCo and other nonalcoholic beverage players.

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