Better Buy: PepsiCo or Coca-Cola?

Parkev analyzes the diverging market paths of Coca-Cola and PepsiCo, noting that Coca-Cola is trading near its 52-week high while PepsiCo is near its 52-week low. Parkev explains that Coca-Cola has benefited more from the economic reopening due to its dominant share in 'away-from-home' channels like stadiums, cinemas, and theme parks. In contrast, PepsiCo's advantage in the snack segment, which thrived during pandemic lockdowns, has seen a relative cooling as consumers return to outdoor activities.

A major focus for Parkev is the massive gap in profitability between the two giants. Coca-Cola maintains an operating margin of nearly 32%, which is more than double PepsiCo's 15.5%. Parkev highlights that Coca-Cola has successfully improved margins over the last decade, whereas PepsiCo's margins have slightly declined. Additionally, Parkev notes that Coca-Cola's return on invested capital (ROIC) of 17.9% outperforms PepsiCo's 14.5%, suggesting more efficient capital management by Coca-Cola.

Despite Coca-Cola's operational superiority, Parkev finds PepsiCo's valuation much more compelling. Coca-Cola trades at a forward P/E of 24, while PepsiCo trades at a much lower 13.9. Using a discounted cash flow model, Parkev calculates a fair value of $86.61 for Coca-Cola (market price ~$85.80) and a fair value of $178 for PepsiCo (market price ~$124). Because of this significant price-to-value gap, Parkev concludes that PepsiCo is the better buy at current levels.