PepsiCo's International Momentum: A Contrarian Case for Outperforming Coca-Cola

In the volatile consumer staples sector, where margins are squeezed by inflation and shifting consumer preferences, PepsiCo (PEP) has quietly built a case to outperform Coca-Cola (KO) and Coca-Cola Consolidated (COKE) over the long term. While both giants face headwinds, PepsiCo's undervalued metrics, aggressive international expansion, and forward-looking sustainability initiatives position it as a compelling contrarian play in 2025.

Valuation: A Discounted Premium

PepsiCo's valuation metrics suggest it trades at a discount to its peers despite its premium brand portfolio. As of July 2025, PepsiCo's EV/EBITDA stands at 13.49, significantly lower than Coca-Cola's 26.33 (KO) and even COKE's 10.06. This disparity becomes more striking when compared to the Beverages - Non-Alcoholic industry median of 9.675. While KO's EV/EBITDA implies a speculative premium, PepsiCo's multiple reflects skepticism about its North American struggles, creating an opportunity for investors.

The P/E ratio further underscores this gap. PepsiCo's P/E of 19.90 trails COKE's 17.09 and KO's 13.4x–14.6x trailing range. Yet, PepsiCo's earnings power is underpinned by a diversified portfolio of snacks and beverages, including Frito-Lay and Gatorade, which offer stable cash flows. With a P/EG ratio of 3.06, PepsiCo is priced for growth, whereas KO's P/EG of 0.00 suggests overvaluation relative to its stagnant earnings.

Global Diversification: PepsiCo's Secret Weapon

PepsiCo's international momentum is a critical differentiator. In Q1 2025, its International Beverages Franchise saw a 34% revenue surge, driven by volume growth in India, Brazil, and Egypt. While Coca-Cola's global unit case volume grew by 2%, PepsiCo's organic revenue in international markets expanded by 7%, outpacing COKE's 6% and KO's flat performance in Latin America.

Coca-Cola's international expansion, though robust in Asia Pacific and EMEA, is diluted by bottling refranchising and currency headwinds. For example, KO's Asia Pacific unit grew by 6%, but its Latin American segment saw flat sales. PepsiCo, by contrast, is doubling down on high-growth markets like Egypt, where rising middle-class consumption is driving demand for its snack and beverage portfolio. This targeted approach allows PepsiCo to avoid the “spray-and-pray” strategy of broader international diversification, which often dilutes returns.

Strategic Positioning: Sustainability and Innovation

PepsiCo's long-term strategy is anchored in three pillars: regenerative agriculture, emissions reduction, and circular packaging. By 2025, it has already doubled regenerative farming to 1.8 million acres, surpassing its 2030 target. Its water use efficiency improved by 22% in 2023, and it aims to make 98% of its packaging recyclable or reusable by 2025—10 years ahead of KO's 2030 timeline.

Coca-Cola, while a leader in water stewardship, has seen a slight rise in manufacturing emissions and lags in plastic waste reduction. PepsiCo's use of biogas from food waste (e.g., potato peels) and its 10% reusable packaging rate in 2023 highlight a more aggressive sustainability playbook. These efforts not only align with ESG trends but also reduce operational costs, enhancing margins in an inflationary environment.

Product Innovation: Beyond the Sodas

PepsiCo's beverage innovation is often overlooked. Pepsi Zero Sugar and Gatorade's dominance in the sports drink category have driven 14% sales growth in key markets. Meanwhile, Coca-Cola's reliance on Coke Zero Sugar and stagnant sparkling drink volumes (outside of Fanta) leaves it vulnerable to shifting consumer tastes. PepsiCo's snack portfolio, including Lay's and Doritos, also provides a moat in the $250 billion global snack market, where KO's portfolio is less diversified.

The Contrarian Case

While Coca-Cola's brand equity and global reach are undeniable, its premium valuation and exposure to currency and bottling risks create a drag on returns. PepsiCo, by contrast, offers a more attractive risk-reward profile:
- Undervalued metrics: A 13.49 EV/EBITDA vs. KO's 26.33.
- Higher organic growth: 7% international revenue growth vs. KO's 6% and COKE's 3%.
- Stronger ESG execution: 22% water efficiency improvement vs. KO's marginal gains.

For investors seeking long-term growth in a sector prone to stagnation, PepsiCo's international momentum and strategic discipline make it a compelling alternative to Coca-Cola. While the road ahead is not without challenges—North American headwinds and supply chain costs persist—the company's global diversification and sustainability-driven innovation position it to outperform in a world where volatility is the norm.

Investment Takeaway: Buy PepsiCo for its undervalued growth potential and international expansion. Target entry points near its 52-week low of $125, with a long-term price target of $150–$160. Avoid Coca-Cola until its valuation aligns with more realistic growth expectations.