Is there still fizz left in the Pepsi and Coca-Cola share prices?

Coca-Cola’s [KO] share price is up just under 7% so far in 2021, with Pepsi’s [PEP] share price 12% higher over the same period, but with a prolonged lack of Covid-19 restrictions keeping hospitality open, coupled with positive recent Q3 earnings, is there potential upside growth in these US multinational soft beverage giants?

While Pepsi’s share price is outperforming its rival’s growth rate, Coca-Cola’s sales growth is projected to be about twice the rate of Pepsi’s – can Coca-Cola fulfil these projections and entrench its position as the market incumbent in the soft beverage sector?

What’s happening with the Coca-Cola and Pepsi share prices?

Both stocks are on a similar trajectory over the past 12 months, after recovering from early-year lows as the global pandemic hit. Coca-Cola’s share price is up 17.29% over the past year, while Pepsi’s share price beats that with a 21.24% gain, as at Friday 29 October’s close.

Last week’s 3.64% gain has helped push Coca-Cola’s share price up to last Friday’s close at $56.37, for a modest year-to-date rise of 6.84%, and just 2.07% below the 52-week high of $57.56 reached on 17 August. By comparison, Pepsi’s share price is up 12.01% to $161.60 in 2021, just 0.41% below the 52-week high at $162.26, which was achieved intraday in Friday’s trading.

Coca-Cola, though, has been unable to break above the $58.00 level, and is an area which “may continue to hold as resistance in the future”, according to Benzinga’s Tyler Bundy. However, other technical analysis indicators show that Coca-Cola’s share price is displaying bullish sentiment: it’s trading above its 50-day and 200-day moving average, while a move higher in the relative strength index shows there are more buyers than sellers, says Bundy.

Coca-Cola and Pepsi outperform in Q3

A consensus-beating 16% jump in Q3 revenue to $10.04bn (versus analyst expectations of $9.75bn) and adjusted earnings per share (EPS) of 65 cents (versus 58 cents) in last Wednesday’s earnings helped Coca-Cola's share price climb 1.93% to $55.52 on the day.

Coca-Cola also raised its full-year profit forecast, with its adjusted EPS prediction increased to 15%-17% from 13%-15%, based on charging higher prices and increased demand for its soft drinks globally, which it believes should counter rising costs from supply chain disruptions, report Reuters.

Chairman and CEO, James Quincey, said Coca-Cola had returned to its pre-pandemic status by winning market share across the beverage industry in Q2, and this encouraging trend continued in the third quarter, after the company made gains ”in both at-home and away-from-home channels”.

Pepsi also released positive earnings earlier in October, raising its full-year forecast for organic revenue growth to 8% from 6%, after Q3 revenue topped analysts’ expectations, despite also facing higher costs and supply chain issues. Adjusted EPS came in at $1.79 versus $1.73, while net sales rose 11.6% to $20.19bn, versus the expected $19.39bn.

Are the Coca-Cola and Pepsi share prices ready to pop?

Both firms are reaping the benefits of improving conditions compared with a year ago, when Covid-19 was restricting business as usual: Coca-Cola’s latest results were boosted by a rebound in demand for its soft drinks, thanks to the reopening of public venues including theatres, stadiums and restaurants worldwide.

Coca-Cola’s outlook is upbeat, according to the Motley Fool’s Demitri Kalogeropoulos: profit should improve “thanks to the volume rebound and continued cost cuts through the summer months. Coke should also benefit from a shift toward premium beverages and serving sizes in today's free-spending economic environment”.

While rising costs could affect the short-term outlook for both companies, Kalogeropoulos is bullish in his assessment for Coca-Cola’s “improving growth and profitability trends in 2022 and beyond.” Edward Jones analyst, John Boylan, reinforces this optimism, report Reuters, saying "a lot of the things Coke has done operationally, like reduce the number of products that they have and focus on faster growing products, should help at least mitigate some cost inflation."

“Coke should also benefit from a shift toward premium beverages and serving sizes in today's free-spending economic environment" - Demitri Kalogeropoulos, The Motley Fool

The outlook for Pepsi is similarly positive, after the group “navigated Covid disruption, and more recently – supply, cost and distribution headwinds – remarkably well”, according to Hargreaves Lansdown equity analyst, Sophie Lund-Yates. Pepsi’s more diverse mix of quality brands – “23 of which generate $1bn or more of sales a year”, says Lund-Yates, means it has more strings to its bow that just soft drinks, with brands such as Walkers crisps and Doritos and Quaker Oats.

What are the analysts saying about Coca-Cola and Pepsi’s share price?

The 27 analysts offering 12-month price forecasts on the Coca-Cola share price have an average target of $62.13, which represents a 10.22% increase from Friday’s close at $56.37.

With 12 ‘buy’, four ‘overweight’ and 11 ‘hold’ ratings according to the Wall Street Journal(WSJ), analysts rate the stock a positive ‘overweight’. Morningstar analyst Erin Lash agrees that the shares are currently undervalued, placing a fair value estimate of $58.00 on Coca Cola’s share price.

Pepsi’s share price is also rated a consensus ‘overweight’, among 24 analysts, with 10 ‘buy’, two ‘overweight’, 11 hold, and one ‘underweight’ rating. This is backed up by an average price target among analysts covering the stock of $166.91, indicating a potential upside of 3.29% on Friday’s close at $161.60.