After A 25% Fall In 2023 Is Campbell A Better Pick Than PepsiCo Stock?

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. There is more to the comparison, and in the sections below, we discuss why we believe that Campbell will offer better returns than PepsiCo in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation, in an interactive dashboard analysis of PepsiCo vs. Campbell Soup: Which Stock Is A Better Bet? Parts of the analysis are summarized 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. This compares with an increase of about 25% for the S&P 500 over this roughly three-year 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 fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT.
• 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. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
• 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? While we think both stocks will see higher levels in the coming years, CPB will likely outperform PEP.

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.
• The company’s sales declined in fiscal 2021 (fiscal ends in July) due to volume decline and no pricing growth. The company’s 2022 sales were marginally higher as better price realization offset volume declines. A similar trend was visible in 2023, with pricing growth driving sales growth despite unfavorable volume/mix.
• If we look at the last twelve-month period revenues, PepsiCo has fared better with 9.5% sales growth, while Campbell saw its revenue rise by 4.5%.
• Our PepsiCo Revenue Comparison and Campbell Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, revenue for both PepsiCo and Campbell is expected to grow at a low single-digit average annual rate.

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.
• Our PepsiCo Operating Income Comparison and Campbell Operating Income Comparison dashboards have more details.
• Looking at financial risk, PepsiCo fares better. While PepsiCo’s 19% debt as a percentage of equity is lower than 36% for Campbell, its 10% cash as a percentage of assets is higher than 1% for the latter, implying that PepsiCo has a better debt position and more cash cushion.

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.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Campbell is a better pick.
• Campbell expects its organic sales growth to be up between 0% and 2% and earnings to rise in mid-single-digits driven by margin expansion.
• Even if we compare the current valuation multiple to the historical average, Campbell fares marginally better. PepsiCo stock trades at 2.5x revenues, compared to its last five-year average of 3.0x, while Campbell stock trades at 1.4x trailing revenues vs. the last five-year average of 1.7x.
• Our PepsiCo (PEP) Valuation Ratios Comparison and Campbell (CPB) Valuation Ratios Comparison have more details.
• 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 – PepsiCo vs. Campbell– which also provides more details on how we arrive at these numbers.

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.

[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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