Simple Stock Comparison – KO & PEP

   

simple stock analysis pep simple money man

When we think of soda, the two giants that come to our minds are inevitably Coca-Cola and Pepsi. Ahhh, the sweet sweet elixir that I must have with pizza or fried chicken or a burger.  At our house, I like the taste of Pepsi, while wifey likes Coca-Cola and my son will drink the water-downed version of either J The difference in taste is not that significant, and apart from some things, I’ve found that this is true for the two companies themselves. Coca-Cola’s origination dates back to 1886, so it’s been around for over 100 years. The KO went public in 1978. For Pepsi, it’s been around since 1893 (with the name Brad’s Drink, but a few years later renamed to Pepsi) and its stock went public in 1999.

 

 

Financial Rundown

 

KO has a market cap of almost $197B, pays a dividend of .37 cents per quarter and has a yield of 3.22. Per its 10k filed in February 2017, Net Revenue dropped by about $2.4 billion.

 

 

PEP on the other hand has a market cap is over $160B, pays a dividend of .75 cents per quarter and has a yield of 2.65.  Per its 10k filed in February 2017, Net Revenue dropped from 2015 to 2016 by $1.7 billion.

 

 

However, fast forward to spring 2017, Market Exclusive reported Q1 2017 EPS of .94 and revenue of $12.05 billion beating analyst estimates of $11.98 billion. How about we look at a couple of ratio’s real quickly. For 2016 as reported on Yahoo Finance, the Current Ratio for PEP (current assets/current liabilities) is 1.28. For KO it’s 1.28 as well (wow didn’t expect them to be the exact same). How about the P/E (price to earnings or how good of a value each stock is)? PEP’s P/E is 26, while KO’s is 29. PEP’s lower P/E suggests it may be a bit undervalued as compared with KO especially given its growth trends I’ll mention later. And finally, we move on to Return on Equity (ROE), measuring how well management is working on utilizing the company’s resources to generate a profit. ROE is net income/shareholders equity. For PEP it is 54.92% and for KO it’s 26.74%. Wow, PEP’s ROE is double that of KO. Please note this is just as I’m reporting it from Yahoo Finance, but I also understand that ROE can be artificially boosted.

 

 

Changes at KO

 

Recently the new CEO James Quincey is working to make KO a leaner business. It plans to “cut costs by an additional $800 million a year, adding to a plan to wring $3 billion in savings…including 1,200 job cuts through 2018.” In contrast to PEP, KO’s revenue fell last quarter by 11%. One can predict that as a result of these changes in structure,  the P/E ratio may be higher because investors believe in the changes KO is making and thus the stock price will increase as a result in the future.

 

 

PEP – Diversified in Business

 

Do you know that the Pepsi portfolio contains 22 brands? From Pepsi to Tropicana, to Gatorade and more food products like Frito-Lay to Quaker Foods, the product portfolio is huge.  Take a look at the pic below:

Source:  http://www.suredividend.com/pepsicos-22-billion-dollar-brands-future-growth/

 

As everyone has heard of Pepsi, even more have heard of Coca Cola – KO. It’s the leading soda company in the world with a market cap of over about $198 billion. Even though KO is bigger, one can argue, just by the comparison chart below from Google Finance that PEP (in blue) has been growing at a faster rate than KO (in red). In a 5 year span, PEP has grown around 3 times faster than KO.

 

 

 

 

Love Their Commercials – PEP Marketing

 

Marketing is all about capturing your target audience and influencing them that they’ll be happy and satisfied with the purchase of your product. For PEP, this means that drinking it will ensure you have a good time or maybe get to go on an adventure, or just laugh and want it for no other reason. I remember seeing the below commercial many years ago and found it to be pretty funny. I was surprised to find it on YouTube with so few hits.

 

 

 

Also in terms of marketing, I can proudly say I still have my Pepsi sunglasses case 21 years after their 1996 “Pepsi Stuff” event. It’s biggest campaign where it planned to distribute more than 7 billion points on more than 4 billion packages of Pepsi products.

 

 

Snapshot Side by Side (Why Didn’t I Do This Before)

Measurement @ 5/18/2017 KO PEP
Price $43.88 $114.19
Market Cap $188B $163B
Dividend 0.37 0.81
Yield 3.38 2.82
P/E Ratio 30.71 24.62
ROE 25.90 59.03
EPS 1.43 4.64

 

Source: Google and Yahoo Finance

 

 

A bit of research in trying to find out the reason for this growth yielded that PEP has a more diversified diversification portfolio (hint: investor likey) of products and particularly healthier beverage option. Per thestreet.com “the company has been increasing its holdings of non-soda alternatives. CEO Indra Nooyi remarked on Wednesday that the company’s Naked Juice line is on track to becoming a billion-dollar brand.”  I’ll mention at the end this time that I’m no expert at analyzing and comparing stocks. This was a fun exercise for me and two companies which I wanted to compare for some time.

 

So are you a Coca-Cola or Pepsi person? Apart from taste, which one do you like in terms of brand recognition, marketing, and overall consumer satisfaction?

 

 

 

________________________________________________________________________________

I use Personal Capital because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!

 

Simple Money Man (SMM)

10 Comments

  1. I love both of the brands. Each have pros and cons and there really isn’t a clear cut winner. It depends on preference in products. Lots of people like Coke over Pepsi, but will choose Mtn Dew over both (Pepsi product). They have both diversified their product lines and keep adding to them to cover a large market share. Along with the products themselves, their stocks are both very good too. Solid long term history with awesome dividend growth. I wouldn’t mind owning both of them. I choose Pepsi as a consumer and Coke as an investor, but that’s just me.

    • You can’t really lose either way. Both company’s have a long and successful history overall and have their hand in a lot of markets all over the world. It’s just fun and interesting to see how they match up toe to toe 🙂

  2. Interesting to watch that both companies have a good management, by using the ROE. Don’t you think that the P/E ratio is too high right now to buy?

    • Yes it is, but I don’t really time the market and take a long time for buy opportunities. Plus there are so many companies out there with P/E ratios off the roof. AMZN is at 186! 🙂

  3. Great post and love the detail! you really can’t go wrong with either of those companies! Both successful and global brands!

  4. I gave up caffeine years ago. So neither for me. Back in my caffeine drinking days I preferred the taste of coke. I hated the way pepsi tasted out of the soda fountain for some reason. so if you game me a blind taste test back in the day I could definitely tell them apart. So for me Coke is the superior brand 🙂

    • I wish I could totally give up caffeine. But on the plus side, my wife and I usually share a can of soda a couple times a week to limit our intake. It’s funny that that regular drinkers can really distinguish the taste 🙂

  5. Nice work SMM. We are Coke fans here. We are probably bias because we are also shareholders, but my husband and I both enjoy the taste of Coke more. From an investing standpoint, they are both great companies and in recent years I think Pepsi has outsmarted Coke by diversifying their offerings. Not to say that coke isn’t diversified, I just think the products that Pepsi got into worked better than Cokes. On a go forward basis, I like Coke’s current yield and growth prospects for the future, I think the new CEO will bring some needed change to the organization.

    • Great insight. Each one is a solid bet. It does feel good to invest in the products we use though. We’re kind of supporting them in a way. I like PEP diversification as well including Lays and Gatorade, both of which I found out are owned by PEP, shortly after I invested 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge