Coca-Cola at records, PepsiCo down 30%. Does the market rightly punish the Dividend King?

A clash of two soda empires is currently unfolding on Wall Street, with an unusually clear interim score. Coca-Cola $KO, after a strong first quarter in which its organic revenue grew 10%, is holding near all-time highs. PepsiCo $PEP, meanwhile, is trading around $137, roughly 30% below its May 2023 peak, as Barron's notes. This year the stock is about 2% in the red and just a few percent above its 52-week low.

Yet the numbers the company presented for the second quarter on July 9 don't, at first glance, look like a reason for a sell-off. Revenue grew 6.4% to $24.2 billion, beating the Wall Street consensus of roughly $23.95 billion. Global organic volumes have been growing at their fastest pace this year since 2022. Reported earnings per share more than doubled year-over-year. And the dividend, which the company increased this year for the fifty-fourth consecutive time, yields 4.3% annually at the current price.

But the market focused on other details. Adjusted earnings per share came in at $2.20, a single cent below analysts' estimates. Moreover, management admitted that full-year earnings growth will likely land at the lower end of the promised range. And above all: North America, which generates more than half of revenue, continues to tread water. The food division, led by Frito-Lay, recorded a revenue decline, while beverages grew only 1% excluding acquisitions. Citi responded by downgrading the stock and slashing its price target from $170 to $145.

Thus, a peculiar contradiction arises. On one side stands a company with iconic brands, growing international business, a dividend pedigree shared by only a handful of companies worldwide, and a valuation deep below its own ten-year average. On the other side stands a market that has lost faith in it, and activist fund Elliott, which arrived with the thesis that the company in its current form is squandering its own potential.

So what is PepsiCo today: a value trap where patient investors grow old, or a Dividend King that the market is punishing for sins it has already begun to correct?