Head to Head Contrast: Diageo (DEO) vs. PepsiCo (PEP)

Diageo (NYSE: DEO) and PepsiCo (NASDAQ:PEP) are both large-cap consumer staples companies, but which is the better investment? We will compare the two businesses based on the strength of their analyst recommendations, valuation, earnings, profitability, institutional ownership, risk and dividends.

Dividends

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Diageo pays an annual dividend of $3.41 per share and has a dividend yield of 2.5%. PepsiCo pays an annual dividend of $3.22 per share and has a dividend yield of 3.2%. Diageo pays out 61.8% of its earnings in the form of a dividend. PepsiCo pays out 61.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Diageo has increased its dividend for 6 consecutive years. PepsiCo is clearly the better dividend stock, given its higher yield and lower payout ratio.



Volatility and Risk

Diageo has a beta of 0.7, suggesting that its share price is 30% less volatile than the S&P 500. Comparatively, PepsiCo has a beta of 0.66, suggesting that its share price is 34% less volatile than the S&P 500.

Institutional & Insider Ownership

11.9% of Diageo shares are owned by institutional investors. Comparatively, 70.8% of PepsiCo shares are owned by institutional investors. 0.3% of PepsiCo shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock is poised for long-term growth.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Diageo and PepsiCo, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Diageo 0 6 4 0 2.40
PepsiCo 1 8 5 0 2.29

Diageo presently has a consensus target price of $154.00, suggesting a potential upside of 11.91%. PepsiCo has a consensus target price of $122.23, suggesting a potential upside of 20.84%. Given PepsiCo’s higher possible upside, analysts plainly believe PepsiCo is more favorable than Diageo.

Profitability

This table compares Diageo and PepsiCo’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Diageo N/A N/A N/A
PepsiCo 7.65% 61.14% 9.71%

Earnings & Valuation

This table compares Diageo and PepsiCo’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Diageo $23.15 billion 3.70 $3.38 billion $5.52 24.93
PepsiCo $63.53 billion 2.26 $4.86 billion $5.23 19.34

PepsiCo has higher revenue and earnings than Diageo. PepsiCo is trading at a lower price-to-earnings ratio than Diageo, indicating that it is currently the more affordable of the two stocks.

Summary

PepsiCo beats Diageo on 11 of the 17 factors compared between the two stocks.

About Diageo

Diageo plc, together with its subsidiaries, produces, markets, and sells alcoholic beverages worldwide. The company offers a collection of brands across spirits, beer, cider, and wine categories. Its brands include Johnnie Walker, Crown Royal, J&B, Buchanan's and Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan, Baileys, Don Julio, Tanqueray, and Guinness. The company also provides adult beverages and non-alcoholic products. Diageo plc was founded in 1886 and is headquartered in London, the United Kingdom.

About PepsiCo

PepsiCo, Inc. operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay's and Ruffles potato chips; Doritos, Tostitos, and Santitas tortilla chips; and Cheetos snacks, branded dips, and Fritos corn chips. The company's Quaker Foods North America segment provides cereals, rice, pasta, mixes and syrups, granola bars, grits, oat squares, oatmeal, rice cakes, simply granola, and side dishes under the brands Quaker, Aunt Jemima, Cap'n crunch, life, Quaker Chewy, and Rice-A-Roni. Its North America Beverages segment offers beverage concentrates, fountain syrups, and finished goods under the Aquafina, Diet Mountain Dew, Diet Pepsi, Gatorade, Mist Twst, Mountain Dew, Pepsi, Propel, and Tropicana brands; and ready-to-drink tea, coffee, and juices. The company's Latin America segment provides snack foods under the Cheetos, Doritos, Emperador, Lay's, Marias Gamesa, Rosquinhas Mabel, Ruffles, Sabritas, Saladitas, and Tostitos; cereals and snacks under the Quaker brand; and beverage concentrates, fountain syrups, and finished goods under the 7UP, Diet Pepsi, Gatorade, H2oh!, Manzanita Sol, Mirinda, Pepsi, and Toddy brands. Its Europe Sub-Saharan Africa segment offers snack food; cereals and snacks; beverage concentrates, fountain syrups, and finished goods; ready-to-drink tea products; and dairy products under the Agusha, Chudo, and Domik v Derevne brand names. The company's Asia, Middle East and North Africa segment provides snack foods under the Cheetos, Chipsy, Crunchy, Doritos, Kurkure, and Lay's brands; cereals and snacks under the Quaker brand; beverage concentrates, fountain syrups, and finished goods; and ready-to-drink tea products. The company was founded in 1898 and is headquartered in Purchase, New York.

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