HomeMost PopularInvestingWhich Is A Better Pick – PepsiCo Stock Or Amgen?

Which Is A Better Pick – PepsiCo Stock Or Amgen?

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When considering the better investment between PepsiCo stock (NYSE: PEP) and Amgen stock (NASDAQ: AMGN), we believe that PepsiCo is the superior pick. Despite operating in different sectors, these companies have similar operating incomes of $9 billion to $12 billion, making a comparison relevant. The decision to invest often comes down to finding the best stocks that align with specific investment styles. While comparing P/S ratios may not be helpful due to the differing sectors, we can assess their valuations by comparing their current multiples with their historical ones.

Interestingly, both PepsiCo and Amgen have had a Sharpe Ratio of 0.4 since early 2017, which is lower than the S&P 500 Index’s Sharpe Ratio of 0.6 over the same period. However, the Trefis Reinforced Value portfolio has a Sharpe Ratio of 1.3, indicating stronger returns per unit of risk.

When looking at stock returns, Amgen has outperformed PepsiCo this year with 3% gains compared to a 3% decline for PepsiCo. However, both stocks have underperformed the broader S&P 500 index, which is up by 13%. In the following sections, we will delve deeper into why we believe PepsiCo will offer better returns than Amgen over the next three years by considering factors such as historical revenue growth, profitability, and valuation.

1. PepsiCo’s Revenue Growth Is Better

  • PepsiCo has achieved an average annual revenue growth rate of 8.8% over the last three years, outperforming Amgen’s rate of 4.1%.
  • PepsiCo’s strong revenue growth can be attributed to favorable pricing trends and a swift recovery from COVID-19-induced lockdowns.
  • Amgen’s revenue growth is driven by the expansion of some drugs, but sales of older drugs have declined.
  • In the last twelve-month period, PepsiCo achieved sales growth of 10.1%, while Amgen’s revenue only rose by 0.8%.
  • Looking ahead, both companies are expected to experience low single-digit average annual revenue growth.

2. Amgen Is More Profitable

  • PepsiCo’s operating margin declined from 15.3% in 2019 to 13.5% in 2022, while Amgen’s operating margin decreased from 41.4% to 36.3% over the same period.
  • In the last twelve-month period, Amgen has a higher operating margin of 35.7% compared to PepsiCo’s 11.7%.
  • Regarding financial risk, PepsiCo has lower debt as a percentage of equity (18%) than Amgen (43%), but Amgen has more cash as a percentage of assets (38%) compared to PepsiCo (7%).

3. The Bottom Line

  • Considering factors such as revenue growth, debt position, and valuation multiples, we believe PepsiCo is the better pick.
  • Based on P/S as a base, PepsiCo offers better prospects compared to Amgen due to high fluctuations in P/E and P/EBIT.
  • Our analysis points to an expected return of 8% for PepsiCo over the next three years, compared to a -1% expected return for Amgen.
  • It’s worth noting that Amgen faces patent expirations and increased competition for some of its drugs, which may impact its future performance.
  • Even by comparing the current valuation multiple to the historical average, PepsiCo has a slightly more favorable valuation compared to Amgen.
  • While PepsiCo is the better pick between the two, there may be even better investment opportunities. Our Better Bets Than PEP Stock dashboard provides details on S&P500 stocks that may offer superior returns in the next three years.

While PepsiCo may offer better returns than Amgen in the next three years, it is also beneficial to consider how PepsiCo’s peers perform on crucial metrics. You can find valuable comparisons for companies across industries in our Peer Comparisons section.

Returns Sep 2023
MTD [1]
YTD [1]
Total [2]
PEP Return -1% -3% 68%
AMGN Return 5% 3% 84%
S&P 500 Return -4% 13% 93%
Trefis Reinforced Value Portfolio -6% 23% 534%

[1] Month-to-date and year-to-date as of 9/22/2023
[2] Cumulative total returns since the end of 2016

For more market-beating portfolios and detailed price estimates, please visit Trefis.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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