Published: Jul. 25, 2014 8:03 AM ET
- KO’s narrow moat may have a negative impact on their future quarterly reports.
- Pepsi’s wide moat of products will help them counter-effect any form of taxes on sodas.
- KO is working on expanding its pipeline by partnering up with Green Mountain.
- Pepsi’s percentage of institutional holdings is around 10% greater than that of KO’s.
- PEP has a greater ROE and EPS relative to KO.
Coca-Cola (NYSE:KO) has been branded and tabbed as the paramount choice for seeking a “refreshing” kinesthesia. Although this is true, consumption of both regular and diet soda has recently declined within the United States.
- KO has a very narrow moat of products relative to its competitor PepsiCo.
- PepsiCo. is the world’s largest snack food company.
- PEP’s Mountain Dew business is outperforming the Cola market.
- PepsiCo. is a leader in non-carbonated beverages, such as Gatorade and Tropicana, within the United States.
- KO has a Zack’s rating of Hold, whereas PEP has a Zack’s rating of BUY.
- Although many consumers are against it, international and local government taxes on sodas are expected to increase. Due to Pepsi’s wide moat of products, being a leader in both non-carbonated and snack food businesses, global headwinds from tariffs will not impact the company as much as KO’s soda based, narrow portfolio.
- KO is currently facing headwinds from currency volatility and taxes in Venezuela.
Who is going to survive this economic down-turn forecasted by Nobel Laureate and Yale Professor, Robert Shiller?
I’m not God, so I can’t give you the answer. What I can do is tell you PEP generates more revenue than KO. Due to PEP’s diversified portfolio, it’s not hard to explain why. During TTM, PEP has generated $66 billion USD in revenue, $20 billion USD more than KO. KO currently has $57 billion USD in total liabilities, $3 billion USD greater than PEP’s total liabilities. I’m not saying KO doesn’t turn out a pretty penny after operating expenses and other liabilities. KO, although in massive debt, does have a greater net income than PEP; indicative of better business strategies. How that net income is utilized, however, is the question investors should be asking themselves.
PEP has a ROE 5% greater than KO. As an investor how much ROE I receive is my primary concern. The company’s profit margin is of little value to my investment strategy. All I want to know is how much do I as an investor profit from KO’s success?
PEP’s distribution of wealth to shareholders far exceeds that of KO’s. KO’s EPS, YOY, has not even crossed the positive horizontal axis, whereas PEP has been delivering a very strong EPS YOY. I wouldn’t embellish on this point if it were a minute difference. The EPS for PEP last quarter was $14.49. This value is nearly $21/share greater than KO’s previous quarter’s declared EPS of -$7.69. Relating this non-GAAP analyses with KO’s P/E of 22 TTM, values KO as being over-priced relative to both the industry and PEP; both with P/E valuations of 21.
As negative headwinds are trending towards KO’s future, the company does have its windbreaker on. Through partnering with Keurig Green Mountain (NASDAQ:GMCR), KO is planning on expanding its product line with K-cups. This impact, however, won’t be realized until 2015. In one year, according to numerous Gartner’s hype cycles, who knows if Keurig will be the technology of choice for single cup coffee brewers. If a 3-D printer is capable of making an organ, why wouldn’t it be able to produce a single cup of coffee? Either way, we all know our brand of choice for K-cups is the original Donut Shop.
Management and Institutional Holdings
KO’s CEO Muhtar Kent is making around $6 million USD more than PEP’s CEO Indra K. Nooyi. Executive compensation allows me to not only know where the company’s revenue is going, but it also helps me decide where I should place my assets.
Don’t take my word for it; I’m surely not. However, when I see a 10% greater institutional holding in PEP relative to KO, I’d focus on rolling my dice in the same direction as those who hold more information and experience.
Disclaimer: Shawn Arshad is not certified to give financial advice. Although well researched, please do your own research prior to investing. Shawn is not responsible for any actions one makes based on the information he provides.