The stock is up 24% year-to-date, up 24% from this time last year, and up only 18% from this time 2 years ago. The current estimate of annual EPS growth rate for the next five years is 9%, compared with an industry average of approximately 13.9% and a sector average of 14.3%.
The PEG ratio of 2.1 indicates that the PE is higher than the earnings growth rate, which means that the price may have gotten ahead of value. This is because the price and the PE have both risen significantly since last year, although 2013 earnings are not projected to come in that much higher than 2012.
The current analyst rating among the 17 professional analysts who cover Pepsi is a 2.2, up from a 2.3 last year, with a mean target price of $85.83. There are three Strong Buy recommendations, seven Buys, and seven Holds. In the Motley Fool Community, the stock is a four-star CAPs pick, with 4,393 Bulls and 155 Bears (97% positive sentiment).
TheStreet.com recently reiterated its Buy rating on PepsiCo, Inc. (NYSE:PEP) and assigned a score of A-, citing revenue growth, cash flow from operations, expanding profit margins and return on equity. The article also drew the following information from PepsiCo’s recent earnings release: net operating cash flow has significantly increased by 202% from the same quarter last year. Likewise, the gross profit margin is high, at 58%, also an increase from the same quarter last year.
The restructuring that PepsiCo management has undertaken over the past couple of years has started showing results, with the company predicting revenue growth of 3% to 4% over the 2013 to 2014 time period, while expecting earnings growth of 8% to 10% over the same time frame. Emerging markets, with a special focus on Russia, are being targeted to help drive profits.
Looking forward to the rest of 2013
Both The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) are trading at 52-week highs, and both are sporting similar PEs. Both stocks are up a similar amount year-to-date, which accounts for the majority of the stock’s move over the past twelve months.
Both sport similar analyst ratings, and Buy ratings from TheStreet.com. Both have PEG ratios that indicate the valuation may not be right.
Discounting both companies’ PEs a bit, I’m looking at 2013 year-end target prices of $44 for The Coca-Cola Company (NYSE:KO) and $88 for PepsiCo. I think that the recent price moves have pretty much, for me, accounted for its projected earnings for the year.
I may end up being wrong on both companies this time around – but that doesn’t change my mind. Very little gain to be had from these companies at this time.
The article Coke vs Pepsi: The Cola Wars Rematch originally appeared on Fool.com and is written by Karin Hernandez.
Karin Hernandez has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Karin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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