Finance

PepsiCo, Inc. (PEP) and Activision Blizzard, Inc. (ATVI) Go Head-to-head

PepsiCo, Inc. (NASDAQ:PEP) shares are down more than -12.88% this year and recently increased 1.23% or $1.27 to settle at $104.48. Activision Blizzard, Inc. (NASDAQ:ATVI), on the other hand, is up 19.93% year to date as of 06/12/2018. It currently trades at $75.94 and has returned 4.36% during the past week.

PepsiCo, Inc. (NASDAQ:PEP) and Activision Blizzard, Inc. (NASDAQ:ATVI) are the two most active stocks in the Beverages – Soft Drinks industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect PEP to grow earnings at a 7.69% annual rate over the next 5 years. Comparatively, ATVI is expected to grow at a 16.32% annual rate. All else equal, ATVI’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 28.72% for Activision Blizzard, Inc. (ATVI). PEP’s ROI is 16.40% while ATVI has a ROI of 7.60%. The interpretation is that PEP’s business generates a higher return on investment than ATVI’s.

Cash Flow



If there’s one thing investors care more about than earnings, it’s cash flow. PEP’s free cash flow (“FCF”) per share for the trailing twelve months was -1.97. Comparatively, ATVI’s free cash flow per share was +0.65. On a percent-of-sales basis, PEP’s free cash flow was -4.4% while ATVI converted 7.05% of its revenues into cash flow. This means that, for a given level of sales, ATVI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. PEP has a current ratio of 1.30 compared to 2.20 for ATVI. This means that ATVI can more easily cover its most immediate liabilities over the next twelve months. PEP’s debt-to-equity ratio is 4.00 versus a D/E of 0.00 for ATVI. PEP is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

PEP trades at a forward P/E of 17.12, a P/B of 13.64, and a P/S of 2.32, compared to a forward P/E of 25.49, a P/B of 5.87, and a P/S of 8.02 for ATVI. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. PEP is currently priced at a -9.86% to its one-year price target of 115.91. Comparatively, ATVI is 0.08% relative to its price target of 75.88. This suggests that PEP is the better investment over the next year.

Risk and Volatility

Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PEP has a beta of 0.70 and ATVI’s beta is 1.19. PEP’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. PEP has a short ratio of 1.36 compared to a short interest of 1.27 for ATVI. This implies that the market is currently less bearish on the outlook for ATVI.

Summary

Activision Blizzard, Inc. (NASDAQ:ATVI) beats PepsiCo, Inc. (NASDAQ:PEP) on a total of 9 of the 14 factors compared between the two stocks. ATVI generates a higher return on investment, is more profitable, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. Finally, ATVI has better sentiment signals based on short interest.

Previous ArticleNext Article

Related Post

What the Insider Data Suggests About Wells Fargo &... Recent insider trends for Wells Fargo & Company (NYSE:WFC) have caught the attention of investors. Analysts study insider data to get a sense of s...
How Insiders and Institutions are Trading Under Ar... Recent insider trends for Under Armour, Inc. (NYSE:UA) have caught the attention of investors. Analysts study insider data to get a sense of sense of ...
What the Insider Data Suggests About Libbey Inc. (... Recent insider trends for Libbey Inc. (NYSE:LBY) have caught the attention of investors. Analysts study insider data to get a sense of sense of what k...
Comparing Acacia Communications, Inc. (ACIA) and O... Acacia Communications, Inc. (NASDAQ:ACIA) shares are down more than -7.20% this year and recently increased 4.44% or $1.43 to settle at $33.62. Oncono...
Analyzing the Insider Data for Noble Corporation p... Recent insider trends for Noble Corporation plc (NYSE:NE) have caught the attention of investors. Insider data is useful because it can reveal what a ...