Persistent macro uncertainty could make it difficult for investors to choose the right stocks for their portfolios. In such a situation, considering mega-cap stocks could be a good idea. Mega-caps, stocks of companies with a market capitalization of over $200 billion, are generally large, well-established companies with an impressive track record. We used TipRanks’ Stock Comparison Tool to place Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and McDonald’s (NYSE:MCD) against each other to pick the most attractive mega-cap stock.
Coca-Cola (NYSE:KO)
Beverage giant Coca-Cola delivered market-beating first-quarter results, driven by higher demand for its offerings and price hikes to mitigate the impact of cost inflation. Adjusted earnings per share (EPS) increased to $0.68 from $0.64 in the prior-year quarter, driven by about a 5% rise in revenue to $11 billion and a higher adjusted operating margin.
Organic revenue increased 12% in Q1 2023. The company continues to expect organic revenue growth in the range of 7% to 8% in 2023 and adjusted EPS growth between 4% and 5%.
Coca-Cola continues to innovate new beverages based on evolving consumer tastes. The company is exploring opportunities in the alcoholic ready-to-drink beverage space. It is working with Brown-Forman (BF.A) to roll out Jack & Coke cocktails in the U.S., following the product’s initial launch in Mexico last fall. It aims to expand the reach of this product to additional markets in Europe, Asia, Latin America, and Africa later this year.
Is KO Stock a Buy or Sell?
On Monday, Citigroup analyst Filippo Falorni increased his price target for Coca-Cola stock to $74 from $71 and reiterated a Buy rating. Falorni said that the company delivered “solid” Q1 results but “prudently” maintained its outlook due to macro uncertainty and a softer start to the second quarter in early April.
The analyst feels that the company’s fundamentals remain solid, supported by its strong pricing power and robust trends in emerging markets.
Overall, Wall Street’s Strong Buy consensus rating for Coca-Cola stock is based on 12 Buys and three Holds. The average price target of $69.53 implies 9.4% upside. Shares are essentially flat on year-to-date basis. KO’s dividend yield stands at 2.9%.
PepsiCo (NASDAQ:PEP)
Snack food and beverage behemoth PepsiCo also exceeded analysts’ expectations for Q1 2023, driven by increased prices. Revenue increased 10.2% to $17.8 billion, while adjusted EPS rose over 16% to $1.50.
Following robust organic revenue growth of 14.3% in the first quarter, PepsiCo now expects full-year organic revenue growth of 8%, up from prior guidance of 6%. It projects 2023 adjusted EPS to grow by 7% compared to the previous outlook of 6%.
While PepsiCo has already hiked prices in most of its markets, the company said that it might have to take additional pricing actions in certain high inflationary markets.
Is PEP Stock a Buy Now?
On Tuesday, Goldman Sachs analyst Bonnie Herzog reiterated a Buy rating on PEP stock and raised the price target to $208 from $190 following the company’s strong results and a meeting with the management that increased her conviction on the consumer giant’s long-term growth trajectory.
The analyst thinks that PepsiCo is well positioned, given its robust brand portfolio (she especially highlighted Frito Lay) and long-term growth prospects in beverages. Herzog increased her price target to mainly reflect the rebound in the PepsiCo Beverages North America (PBNA) segment’s volumes and the notable progress made toward meeting the goal of mid-teen operating margin for the segment.
Wall Street is cautiously optimistic about PepsiCo, with a Moderate Buy consensus rating based on five Buys and six Holds. The average price target of $191.33 suggests 1.5% upside. Shares are up 4.4% year-to-date. PEP offers a dividend yield of 2.5%.
McDonald’s (NYSE:MCD)
Leading fast food chain McDonald’s delivered impressive first-quarter results, reflecting resilience in a challenging macro environment. Comparable sales rose 12.6%, with growth experienced across segments. The company’s revenue grew 4% to $5.9 billion and adjusted EPS increased 15% to $2.63.
McDonald’s attributed its Q1 2023 performance to a “healthy balance of strategic menu price increases and positive traffic growth.” It experienced a steady recovery in China. The company continues to enhance its menu and expand its footprint.
What is the Price Target for MCD Stock?
Following the results, RBC Capital analyst Christopher Carril increased the price target for McDonald’s stock to $316 from $300 and maintained a Buy rating. The analyst feels that Q1 sales momentum and consistent performance across segments reflected the impact of management’s past reimaging investments, marketing execution, and digital initiatives.
Carril believes that McDonald’s is well-positioned in the current macro backdrop, backed by its continued focus on its core menu and improving in-restaurant operations.
Wall Street has a Strong Buy consensus rating on McDonald’s stock based on 24 Buys and five Holds. The average price target of $314.97 suggests 8.7% upside. Shares have risen about 19% since the start of this year. McDonald’s has a dividend yield of 2.1%.
Conclusion
Wall Street is more bullish about Coca-Cola and McDonald’s compared to PepsiCo. Including dividends and stock appreciation, Wall Street expects Coca-Cola and McDonald’s to deliver comparable total returns. It’s worth noting that as per TipRanks’ Smart Score System, all three stocks discussed here have a score in the range of 8-10, indicating that they are capable of outperforming the broader market over the long term.
