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The Coca-Cola Company (KO), Starbucks Corporation (SBUX): Soft Drinks or Coffee, Which Is Better?

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Is there good news that comes from caffeinated drinks? Soft drink companies like The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) have been looking for a healthier alternative, but maybe they should inform people of some of the truths and myths of caffeine. Fox News recently released some truths about caffeinated drinks that may surprise some people. Let’s take a look at what these were and what effect they could have on some businesses.

The Coca-Cola Company (NYSE:KO)

Fact or fiction

Fox News reported results of several studies, which include the following results, in an episode of Fact or Fiction:

– Caffeine dehydrates you: Fiction. In fact, a study from 2002 showed it is only as dehydrating as water is!

– Caffeine helps you lose weight: Fiction. Caffeinated beverages don’t have any direct correlation to weight loss, but they do decrease your desire to consume other things.

– Caffeine gives you heart disease: Fiction. But remember, it is a stimulant, so it could raise your blood pressure. It should also be noted that if someone already has a tendency for heart disease, it could stimulate it.

Although there are some potential side effects of caffeine, there are clearly some myths. Starbucks Corporation (NASDAQ:SBUX) is one company that should be happy with the final result that Fox released: it is a fact that three cups of coffee a day improves your memory.

Trends and valuations

Starbucks Corporation (NASDAQ:SBUX) has seen ten years of consecutive revenue increases, capped by an increase of nearly 14% in 2012 and 5% since the beginning of 2013. Starbucks has also seen an impressive track record of earnings per share as they have increased every year for the past decade, with 2008 being the exception.

Pepsi’s earnings yield is 4.8%, while The Coca-Cola Company (NYSE:KO) and Starbucks Corporation (NASDAQ:SBUX) show yields of 4.7% and 3.1%, respectively. Starbucks Corporation (NASDAQ:SBUX) has a free cash flow (FCF) yield of 3.2%, which is lower than both Pepsi’s and Coke’s. These companies show FCF yields of 5.7% and 4.3%, respectively. While none of these figures will get bargain investors jumping, these companies all appear to be fairly priced. All of these companies seem to suffer from unusually high P/E ratios. Starbucks Corporation (NASDAQ:SBUX), Pepsi, and Coke show P/Es of 32.2, 20.9, and 21.4, respectively.  Despite some questionable metrics in regards to valuation, all three have performed well.

SBUX data by YCharts


It is hard to imagine any of these companies crumbling overnight, as they each have a wide economic moat, products that people love, and each are established in over 50 countries. In fact, Pepsi and Coke are established in over 200 countries apiece. Despite 50% of Pepsi’s revenues coming from foods (Lays, Doritos, Quaker, etc), and its various locations, 53% of Pepsi’s top line comes from the U.S. It’s important to realize that Starbucks doesn’t just generate revenue from its stores and drink products. Investors should note that the company has partners who market ice creams and liqueurs as well as its bottled beverages and coffees.

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