PepsiCo Is Struggling While Coca-Cola Hits All-Time Highs. Here's Whether the Discount Makes PEP Worth Buying.

Judging by their stock performance, PepsiCo (NASDAQ: PEP) and Coca-Cola (NYSE: KO) seem like their businesses are moving in opposite directions. Shares of PepsiCo have fallen 29% from their high and are trading near a 52-week low, while Coca-Cola is up 28% year to date and sitting near new all-time highs.

Coca-Cola is clearly executing better right now, but PepsiCo is still growing volumes, revenue, and earnings. That's why the sell-off looks less like a red flag and more like a potential opportunity, especially for dividend investors.

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Why Coca-Cola is up, and PepsiCo down

Many consumer goods companies are reporting softer demand as higher gas prices pressure household budgets. Coca-Cola has largely shrugged that off, delivering 6% year-over-year organic revenue growth last quarter, with unit case volume up a solid 5%. Better still, adjusted earnings per share climbed 11% year over year.

PepsiCo also grew organic revenue 2.4% over the year-ago quarter, slower than Coca-Cola's pace. Moreover, adjusted earnings rose just 1% and came in below Wall Street estimates, which helps explain why investors have been harder on the stock.

The difference in business models matters, too. Coca-Cola is a simpler, beverage-focused company, while PepsiCo splits its portfolio between beverages and snack foods. That structure can be a strength at times, but it also tends to produce lower margins.

In the second quarter, Coca-Cola posted a 35% operating margin, while PepsiCo delivered 16.5%. In a choppy macroeconomic environment, investors are rewarding Coke because of its stronger sales and margins.

Why PepsiCo still looks like the better buy

Coca-Cola trades at a forward price-to-earnings (P/E) multiple of 27, which appears to be a fair assessment of its brand value and financial performance. PepsiCo, however, trades at a modest 16 times forward earnings estimates -- a valuation that may be pricing in too much pessimism.

Importantly, PepsiCo is still growing. Global food volume rose 3% in the second quarter, and beverage volumes increased 2%. That's below Coca-Cola's 5% volume growth, but it's meaningful growth for PepsiCo when it's trading at a much lower forward P/E.

Management also expects PepsiCo's North American business to improve from here -- just at a slower pace than it previously thought. PepsiCo still has a wide competitive moat based on strong brands, such as Gatorade, Quaker Oats, and Doritos, among others, and a global distribution system. Over time, investors can expect a business with these assets to compound in value.

Meanwhile, shareholders are getting paid to wait. PepsiCo has a long history of dividend growth and just raised its quarterly payout by 4% to $1.48 per share, putting the forward yield at 4.2% -- nearly twice Coca-Cola's 2.35% forward yield.

That dividend is backed by cash generation. PepsiCo produced $9.3 billion in free cash flow over the past 12 months and paid $7.8 billion in dividends.

Coca-Cola has earned its rerating. But at today's prices, PepsiCo looks like the better value.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.