Pepsi set to dislodge Coca-Cola by market value – Wall Street analysts

By Ralph Tathagata

Coca-Cola’s long held top spot as the biggest U.S. beverage company by market value may soon be toppled by rival PepsiCo, according to Wall Street analysts. Coca-Cola has held the top position largely uninterrupted for the better part of two decades.

Kaumil Gajrawala at Jefferies, a Wall Street analyst who has initiated coverage of PepsiCo with a buy rating, projected that PepsiCo’s shares will rise more than 20% over the next year to $203, for a market value of about $279 billion. That would top the roughly $277 billion market capitalization implied by his $64 target for Coca-Cola, which he rated a hold.

Also, analysts from Cowen and Goldman Sachs Group Inc. said that the projection would mark a significant reversal for the soda giants as, aside from a single day in 2020, PepsiCo’s value hasn’t eclipsed Coca-Cola’s since 2006.

However, at roughly $246 billion on Monday, Coca-Cola’s market cap is nearly $15 billion above PepsiCo’s. This in part due to Coca-Cola’s strong brand portfolio and record of sales growth. But PepsiCo’s food business, including Lay’s potato chips, Doritos and Quaker oatmeal, has become a key differentiator, while Coca-Cola is exclusively a beverage company.

For Gajrawala, PepsiCo’s Frito-Lay North America business will continue to outperform its other products.

“PepsiCo’s hefty investments over the last half decade are yielding results, and we expect returns to accelerate,” Gajrawala wrote in a note to clients, highlighting that the company has invested about $60 billion over the past five years to make operations more efficient, increase capacity and build its brand.

He further analysed PepsiCo’s ability to grow during challenging economic periods, like in the aftermath of the pandemic. He argued that PepsiCo is the most likely company in his beverage and household products coverage to grow earnings in a range of high-single digits or better over the next three years.

However, Gajrawala saw limited room for Coca-Cola to advance at its current valuation, noting that a tax dispute with the Internal Revenue Service also clouds the cola giant’s outlook.

All things being equal, Coca-Cola is hardly falling out of favour on Wall Street, and by one measure is the preferred stock. Its consensus rating — a proxy for the ratio of buy, hold and sell recommendations — is 4.6 out of five, data compiled by Bloomberg show. PepsiCo’s is 4.1 out of five.

Both stocks have trailed the S&P 500 Consumer Staples Index this year. PepsiCo has slumped around 7%, while Coca-Cola has dropped about 10%. Both touched one-year lows in October amid worries that people taking so-called GLP-1 drugs — a class of medicines used to treat diabetes and obesity — will cut back on indulgences.


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