We believe Campbell stock (NYSE: CPB) is a better pick than its sector peer, PepsiCo stock (NYSE: PEP), for the next three years. PEP stock trades at a slightly higher valuation multiple of 2.5x revenues compared to 1.4x for CPB due to its superior revenue growth and better financial position, as discussed below.
1. PEP Stock Has Outperformed CPB In Recent Years
- PEP stock has witnessed gains of 15% from levels of $150 in early January 2021 to around $170 now, while CPB stock has seen little change, moving slightly from levels of $50 to around $45 over the same period.
- However, the increase in PEP stock has been far from consistent. Returns for the stock were 17% in 2021, 4% in 2022, and -6% in 2023.
- Also, the performance of CPB stock with respect to the index has been quite volatile. Returns for the stock were -10% in 2021, 31% in 2022, and -24% in 2023. In comparison, returns for the S&P 500 were 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that PEP and CPB underperformed the S&P in 2021 and 2023.
- In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period.
- Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PEP and CPB face a similar situation as they did in 2021 and 2023 and underperform the S&P over the next 12 months – or will they see a strong jump?
2. PepsiCo’s Revenue Growth Is Better
- PepsiCo’s revenue growth has been better, with an 8.8% average annual growth rate in the last three years, compared to 2.6% for Campbell.
- Strong pricing trends have led PepsiCo’s revenue growth over the recent quarters.
- After COVID-19-induced lockdowns, the recovery has been swift for the beverage giant, with more people venturing out of homes while at-home demand has also been strong.
- Campbell Soup has been facing lower volume for its products in recent years.
3. Campbell Is More Profitable
- PepsiCo’s reported operating margin slid from 15.3% in 2019 to 13.5% in 2022, while Campbell’s operating margin declined from 15.3% in fiscal 2020 to 14.4% in fiscal 2023.
- Looking at the last twelve-month period, Campbell’s operating margin of 13.7% fares marginally better than 12.3% for PepsiCo.
- Looking at financial risk, PepsiCo fares better.
4. The Net of It All
- We see that PepsiCo has demonstrated better revenue growth and has a better financial position. On the other hand, Campbell is more profitable.
- Even if we compare the current valuation multiple to the historical average, Campbell fares marginally better.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 12% for PepsiCo over this period vs. a 17% expected return for Campbell, based on Trefis Machine Learning analysis.
While CPB stock may offer better returns over PEP in the next three years, it is helpful to see how PepsiCo Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Jan 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| PEP Return | -1% | -1% | 61% |
| CPB Return | 1% | 1% | -28% |
| S&P 500 Return | -2% | -2% | 110% |
| Trefis Reinforced Value Portfolio | -4% | -4% | 582% |
[1] Month-to-date and year-to-date as of 1/8/2024
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
