Should You Be Buying Coca-Cola with Warren Buffett?

We would compare Coca-Cola to PepsiCo, Inc. (NYSE:PEP), Dr Pepper Snapple Group Inc. (NYSE:DPS), energy drink provider Monster Beverage Corp (NASDAQ:MNST), and Cott Corporation (NYSE:COT). Pepsi is often considered the closest peer in terms of brand, but much of its product line includes snacks and other foods. Its earnings multiples are very similar to Coca-Cola’s: 19 times trailing earnings, 16 times consensus for 2013. However, Pepsi actually experienced declines in revenue and earnings in its most recent quarterly report compared to the same period in the previous year.

Dr. Pepper Snapple carries a slight discount to the market leaders in the beverage industry, as might be expected; for example, its trailing P/E is 16. The company had been reporting substantial earnings growth, but its sales figures have been flat and so further improvements might not be sustainable. Monster and Cott are more priced for growth, with earnings multiples in the 24-28 range; oddly, this is the case even though Monster’s recent earnings performance has been about in line with that of Coca-Cola or Dr. Pepper Snapple while Cott actually had a weaker bottom line in Q3 2012 than in the third quarter of 2011. These two stocks should certainly be avoided from our point of view.

Coca-Cola, Pepsi, and Dr. Pepper Snapple actually don’t look too attractive either. They are not easy value cases, and their businesses have not been doing particularly well. We wouldn’t make them targets for selling- they are probably good long term holds- but we’d advise against buying at this time.