PepsiCo vs Coca-Cola: A Tale of Two Valuations

PepsiCo's shares have trailed those of Coca-Cola for some time now. This disparity has led to both companies being perceived as different kinds of stocks, despite their seemingly interchangeable nature in investors' portfolios.

PepsiCo owns Frito-Lay snack chips, but like rival Coca-Cola, its biggest business is ready-to-drink bottled beverages. However, the two stocks have distinct valuations, with Coca-Cola priced at a premium trailing price-to-earnings ratio of just over 26, while PepsiCo's is around 18.

PepsiCo's recent performance has been less impressive than Coca-Cola's, with its shares falling nearly 19% in the past two years compared to Coca-Cola's 31% increase. Additionally, their forward-looking dividend yields are disparate at 2.4% and 4.2%, respectively.

The difference in valuation can be attributed to Coca-Cola's higher-margin business model, which involves contracting out bottling work to third-party distributors like restaurants. In contrast, PepsiCo handles most of its own bottling, resulting in lower margins.