The eternal question of “Coke or Pepsi?” has resonated through the stock market and the hearts of consumers for generations. With both companies yielding favorable returns for shareholders and offering a diverse range of popular products, their rivalry has become emblematic of the beverage industry.
Yet, in the ever-changing landscape of the beverage market, a new player has emerged. CelsiusCELH, representing the rapid growth of the “functional beverage” sector, is turning heads. With Celsius stock scaling an astounding annual growth rate of 121% over the last five years, investors find themselves at a crossroads – the classic contenders or the new disruptor?
As soft drink titan Coca-ColaKO prepares to report earnings, the industry is abuzz with speculation. Meanwhile, the beverage behemoth PepsiCoPEP is set to report its earnings in late April, and Celsius in March.
Image Source: Zacks Investment Research
Coca-Cola: A Legacy of Refreshment
Coca-Cola stands as a titan of the beverage industry, boasting a brand recognition that transcends borders. Its core portfolio, anchored by the classic Coke and Sprite, enjoys enduring popularity. Management has also steadily been adding products, venturing into the healthy and functional category with Coke Zero Sugar, Smart Water and Topo Chico.
Coca-Cola stock currently has a Zacks Rank #3 (Hold) rating, reflecting a flat earnings revisions trend. Sales for the current quarter are forecast to grow 5.1% YoY and for FY23 5.8% YoY. Earnings over the same periods are projected to increase 6.7% YoY and 8%YoY.
Image Source: Zacks Investment Research
PepsiCo: The Rival
PepsiCo has long been the archrival to Coca-Cola and presents a formidable challenge. Pepsi too has a very strong brand and is further bolstered by its snacks brands at Frito-Lay and sports drink Gatorade.
Like KO, PEP’s earnings revision trend has been flat over the past two months, giving it a Zacks Rank #3 (Hold) rating. Growth rates for Pepsi are nearly the same as Coca-Cola, but slightly lower.
The two companies also have very similar valuations, with KO trading at a one year forward earnings multiple of 21.3x and PEP 21x. They are also both below their respective historical median valuations, with KO’s 10-year median at 23.1x and PEP’s at 22.3x.
The two soft drink behemoths have had very similar returns since the start of 2023 as well, losing ~6% over the last 14 months. In the chart below we can see that in October of 2023, both stocks experienced some heavy selling, pushing them down double digits YTD, while the market leaders were up considerably on the year.
It is not often you get the opportunity to pick up companies as high-quality as Coca-Cola and PepsiCo, and those investors who stepped up during the selloff have done decently well.
Image Source: TradingView
Celsius: The Maverick Newcomer
Celsius, a relative newcomer, has carved a niche in the functional beverage market with its fitness-focused drinks. Its bold flavors and focus on energy, metabolism, and endurance have attracted a loyal following.
Celsius too has a Zacks Rank #3 (Hold), reflecting a mixed earnings revision trend. But the epic returns from its stock are driven by the almost unbelievable sales growth the company has seen. In 2019, annual sales at CELH were $75 million. In the trailing 12 months they are $1.15 billion. You would be hard pressed to find a single other company that grew at such a rate.
Sales and earnings forecasts are very strong as well, which can be seen in the table below. Current year sales are expected to climb nearly 100% YoY to $1.3 billion and EPS are projected to jump 185%.
