Critical Review: Pepsico (PEP) versus Coca-Cola FEMSA (KOF)

Pepsico (NASDAQ: PEP) and Coca-Cola FEMSA (NYSE:KOF) are both mid-cap non-cyclical consumer goods & services companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, institutional ownership, earnings, risk, dividends and valuation.

Dividends

Pepsico pays an annual dividend of $3.22 per share and has a dividend yield of 2.7%. Coca-Cola FEMSA pays an annual dividend of $1.75 per share and has a dividend yield of 2.3%. Pepsico pays out 66.5% of its earnings in the form of a dividend. Coca-Cola FEMSA pays out 49.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years.

Valuation and Earnings

This table compares Pepsico and Coca-Cola FEMSA’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Pepsico $62.80 billion 2.72 $6.33 billion $4.84 24.83
Coca-Cola FEMSA $9.54 billion 1.63 $488.00 million $3.52 21.30

Pepsico has higher revenue and earnings than Coca-Cola FEMSA. Coca-Cola FEMSA is trading at a lower price-to-earnings ratio than Pepsico, indicating that it is currently the more affordable of the two stocks.

Volatility & Risk

Pepsico has a beta of 0.68, suggesting that its share price is 32% less volatile than the S&P 500. Comparatively, Coca-Cola FEMSA has a beta of 0.94, suggesting that its share price is 6% less volatile than the S&P 500.

Insider and Institutional Ownership

70.2% of Pepsico shares are owned by institutional investors. Comparatively, 6.7% of Coca-Cola FEMSA shares are owned by institutional investors. 0.3% of Pepsico shares are owned by company insiders. Comparatively, 1.0% of Coca-Cola FEMSA shares are owned by company insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of recent ratings and target prices for Pepsico and Coca-Cola FEMSA, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Pepsico 0 7 7 0 2.50
Coca-Cola FEMSA 0 4 2 0 2.33

Pepsico currently has a consensus target price of $122.33, indicating a potential upside of 1.80%. Coca-Cola FEMSA has a consensus target price of $106.00, indicating a potential upside of 41.35%. Given Coca-Cola FEMSA’s higher probable upside, analysts clearly believe Coca-Cola FEMSA is more favorable than Pepsico.

Profitability

This table compares Pepsico and Coca-Cola FEMSA’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Pepsico 10.97% 59.68% 9.70%
Coca-Cola FEMSA 7.28% 11.37% 5.31%

Summary

Pepsico beats Coca-Cola FEMSA on 12 of the 16 factors compared between the two stocks.

Pepsico Company Profile

PepsiCo, Inc. is a global food and beverage company. The Company’s portfolio of brands includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. The Company operates through six segments: Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), North America Beverages (NAB), Latin America, Europe Sub-Saharan Africa (ESSA), and Asia, Middle East and North Africa (AMENA). The FLNA segment includes its branded food and snack businesses in the United States and Canada. The QFNA segment includes its cereal, rice, pasta and other branded food businesses in the United States and Canada. The NAB segment includes its beverage businesses in the United States and Canada. The Latin America segment includes its beverage, food and snack businesses in Latin America. The ESSA segment includes its beverage, food and snack businesses in Europe and Sub-Saharan Africa. The AMENA segment includes its beverage, food and snack businesses in Asia, Middle East and North Africa.

Coca-Cola FEMSA Company Profile

Coca-Cola FEMSA, S.A.B. de C.V. is a franchise bottler of Coca-Cola trademark beverages across the world. The Company and its subsidiaries are engaged in the production, distribution and marketing of certain Coca-Cola beverages. It is also engaged in acquiring, holding and transferring all types of bonds, shares and marketable securities. The Company’s segments include Mexico and Central America division, which comprises Mexico (including corporate operations), Guatemala, Nicaragua, Costa Rica and Panama; the South America division, which consists of Brazil, Argentina and Colombia; Venezuela, which operates in an economy with exchange control and hyper-inflation, and the Asian division, which consists of the Company’s equity method investment in Coca-Cola FEMSA Philippines, Inc. The Coca-Cola trademark beverages include sparkling beverages (colas and flavored sparkling beverages), waters and still beverages (including juice drinks, coffee, teas, milk, dairy and isotonic drinks).

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