Just Buy This Beverage Giant: The Coca Cola Company (KO)

Competitors

Coca-Cola’s biggest competitor, PepsiCo, Inc. (NYSE:PEP), would be announcing its earnings for 4Q12 on February 14. Analysts expect earnings per share of $1.05 on revenues of $19.70 billion. Pepsi’s great year in the emerging markets would certainly help it in offsetting the global economic downturn. However, in case of developing countries, Pepsi suffered a major setback in the soda sales. The snack division showed a lot of promise especially in the developing and emerging markets. Further, huge amount of money was spent on marketing in order to rebrand itself in North America and Europe. Pepsi is currently trading at a forward P/E (1yr) of 16.37x and has a dividend yield of 3%. Using earnings multiple, I value Pepsi at $81. Hence, it has an upside potential of almost 12% at this point in time.

On the other hand, Dr. Pepper Snapple Group Inc. (NYSE:DPS) is trading at a forward P/E (1yr) of 14.16x, showing that the investors aren’t expecting that much from the company in the near future. Further, a mean recommendation of 2.6 on the sell side depicts that it’s not as attractive as Coca-Cola and Pepsi. Moreover, its mean target price on the sell side is $47 which shows that it has a meager upside potential of 3%. In short, I remain neutral on Dr. Pepper Snapple.

Conclusion

Coca-Cola is still the market leader in the U.S. carbonated soft drinks industry (CSD) with a whopping 41.9% market share. The great hallmark of Coca-Cola has been its consistency over the years. In 2012 as well, it almost showed a flawless performance. The only region where Coca-Cola didn’t do well was China and Europe. As these regions continue to battle with slow economic growth, it had an effect on almost every consumer goods industry. Therefore, Coca-Cola should be patient and wait for the economic revival before it starts to make significant inroads over there as well. The bottom line is that Coca-Cola is still the biggest player in its industry and will continue to mint substantial profits in the years ahead. In short, I recommend buying Coca-Cola for a yield of at least 16%.

The article Just Buy This Beverage Giant originally appeared on Fool.com and is written by Waqar Saif.

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