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Why PepsiCo, Inc. (PEP) Fails The Test

A muddled mess

Some analysts might say that PepsiCo is doing the right thing by having its snack and other food product divisions. After all, doesn’t this diversify its revenue stream? My response is a firm “No.” The Coca-Cola Company (NYSE:KO) has, as its sole focus, its carbonated beverage products. That laser focus has resulted in the company’s superior performance. What’s the No. 1 soda in the world? Coke. What’s the No. 2 soda in the world? You might be tempted to say Pepsi, but you’d be wrong. The No. 2 soda is Diet Coke.

Even PepsiCo, Inc. (NYSE:PEP)’s current CEO is unable to focus on the core business; she speaks of promoting healthier alternatives. And, while that is well and good, there are many who rightly view this as a distraction from the company’s core business. Until the company can figure out what it’s really about, performance is likely to continue to be sub-par.

The bottom line

PepsiCo has some serious marks against it as an investment opportunity – flat volumes, the lowest operating margin in the industry, declining EPS (without the lower taxes), and expanding its debt accounts to finance share repurchases and dividends. This is one company that has too much baggage to qualify as a good investment.

Nauman Aly has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage and PepsiCo.

The article Why Pepsi Fails The Test originally appeared on

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