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Coke (KO) vs. Pepsi (PEP): The Battle of the Soda Stock

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The Coca-Cola Company (KO) and PepsiCo Inc. (PEP) have been locked in a fierce, bitter rivalry for decades now, jousting to position themselves as the world’s premier sugary carbonated beverage. High ranking company officials for both Coca-Cola and PepsiCo must lose their minds when a mere plebian tells them that they cannot tell the difference between Coke and Pepsi, Sprite and 7-Up, or Powerade and Gatorade. To any of those palate-less folks out there reading this: trust me, there is a big difference in taste amongst Coco-Cola and PepsiCo products.

Because of their notable competition, let’s examine the stock side of the Coke-Pepsi rivalry and determine which of the two companies is the better investment. The Coca-Cola Company has a Zacks Rank #3 (Hold) and PepsiCo Inc. has a Zacks Rank #2 (Buy). But we need to detail more aspects than simply the Zacks Ranking.

Earnings

Over the past four earnings quarters, Coca-Cola outperformed our estimate four times, whereas PepsiCo only outperformed three times. It should be noted that the onetime PepsiCo did not outperform the estimate, it did meet the estimate figure.

Starting with the second quarter of fiscal 2015, Coca-Cola surprise percentages for outperforming our estimate were 5%, 2%, 2.7%, and 2.3%, respectively. Over the same earnings period, PepsiCo’s surprise percentages were 7.32%, 7.14%, 0%, and 9.88%, respectively.

Earnings revisions for the companies’ fiscal 2016 second quarter and for the fiscal 2016 year are quite promising for both. Coca-Cola has a total of 11 positive earnings revisions for the upcoming quarter – 4 in which have been revised in the past seven days – and another 11 positive earnings revisions for the fiscal year.

PepsiCo has had 8 total earnings revisions with 3 of them being negative, one each in the past seven, thirty, and ninety days. However, the majority of PepsiCo’s revisions are still positive as well as having 15 positive earnings revisions for the fiscal 2016 year, 5 each in the past seven, thirty, and sixty days.

Growth

Both Coca-Cola and PepsiCo have not had exceptional figures for EPS & sales growth. Coca-Cola had earnings loses versus the previous year of 13.64% and loses versus the previous quarter of 25.49%. The makers of Coca-Cola Vanilla also had sales loses versus the previous year of 8.02% and loses versus the previous quarter of 12.49%.

PepsiCo’s EPS & sales growth figures were not much better than Coca-Cola’s, in that PepsiCo did at least have one positive growth figure to hang its hat on. PepsiCo had earnings growth versus the previous year of 7.23% and earnings loses versus the previous quarter of 16.04%. The makers of the discontinued and recently revived Crystal Pepsi had sales loses versus the previous year of 2.91% and loses versus the previous quarter of 36.17%.

Value

Of the two companies, PepsiCo has the better PE ratio – 22.03 compared to Coca-Cola’s 23.97. The companies’ return on equality and return on asset figures are also very close. Coca-Cola’s ROE quarter-to-quarter change is 1.93% and its ROA quarter-over-quarter change is -2.3%. PepsiCo’s ROE quarter-over-quarter change is 9.6% and its ROA quarter-over-quarter change is 0.5%.

Final Thoughts 

Coca-Cola reporting less than stellar figures in its fiscal 2016 first quarterly report does not help the soda-maker’s case as it does have some stronger stats compared to PepsiCo. Of the two competitors in the battle of the soda stock, the victor is PepsiCo. The difference in each companies key metrics are quite marginal, so much your final decision will come to personal preference.

The tie-breaker here would have to be PepsiCo outperforming our earnings estimate at higher percentages than Coca-Cola. Unless market price is something that concerns you as an investor, these two companies are rather similar and it’s a coin toss between them.

 

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COCA COLA CO (KO): Free Stock Analysis Report
 
PEPSICO INC (PEP): Free Stock Analysis Report
 
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