Both Pepsico Inc. (NYSE:PEP) and the Coca-Cola Company (NYSE:KO) have been strong leaders in the highly profitable soft drink/beverage industry for decades. Coca-Cola owns the most well-known brand worldwide, while Pepsico, which also by the way enjoys great brand recognition, is more diversified than its rival. When most people think about rivalries in general or in the beverage industry in particular, they think of the “cola wars” straight away, the endless clash for market leadership between Coca-Cola and PepsiCo. But that’s not the whole story. Therefore, in the following article we will provide a multi-faceted analysis of the two companies in an attempt to suggest the better and more attractive company for investment.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 145% over the last 34 months and outperformed the S&P 500 Index by 85 percentage points (see the details here).
A recent report issued by Beverage Digest reveals that the carbonated soft drink case volumes in the U.S. have declined for ten straight years, reaching a level of 8.8 billion 192-ounce cases in 2014. By the same token, the U.S. per capita consumption of soda drinks has plummeted to its lowest level since 1986, reaching a figure of 673 eight-ounce servings per year. Consequently, the non-alcoholic beverage companies, including the two companies under discussion, have been adversely affected by this sluggish demand for soda drinks. As a result, both Coca-Cola and PepsiCo have been expanding into alternative beverage categories that are considered healthier. Let’s start off by comparing the performance of the two stocks and we’ll then take a closer look at their recent financial performance and on the hedge fund sentiment on these stocks.
The shares of PepsiCo have increased by only 0.26% since the beginning of the current year, while the shares of Coca-Cola have dropped by slightly more than 5% year-to-date. In the meantime, Coca-Cola has a higher dividend yield than its rival, generating a dividend yield of 3.3% compared to the 2.9% dividend yield of PepsiCo. Specifically, Coca-Cola pays out an annualized dividend of $1.32, while PepsiCo pays out a higher annualized dividend of $2.81. Moving on to the companies’ financial performance during the first quarter of the current year, we can state that both Coca-Cola and PepsiCo delivered financial results that were at least in line with the analysts’ expectations. Coca-Cola reported adjusted earnings per share of $0.48, which yields an increase of 9.1% year-over-year. Meanwhile, PepsiCo posted adjusted earnings per share of $0.83 that marks a lower year-over-year increase of 2.5% than its rival. Moreover, Coca-Cola reported a revenue growth of 1.3% year-over-year, reaching a figure of $10.7 billion. However, PepsiCo’s first quarter revenue of $12.2 billion dropped 3.2% year-over-year. Therefore, it seems that the company between the two which is trending in the right direction is when it comes to recent financial performance is Coca-Cola. As of June 26, Coca-Cola was trading at a forward price-to-earnings ratio of 18.78, while its major rival, PepsiCo, had a slightly higher forward P/E ratio of 19.37. However, Coca-Cola’s trailing P/E is equal to 25.16, higher than PepsiCo’s figure, which that stands at 22.10.