Shares of Coca-Cola (NYSE: KO) rose last week on strong earnings results.

While this is certainly good for Coke, it might be a portent of even better things for rival PepsiCo (NYSE: PEP) when it reports earnings on Wednesday, April 25 and has its annual shareholder meeting on May 2, 2007.

First a Look at Coke
"Life tastes good" over at Coca-Cola. The company has several newer brands such as Enviga, Hi-C, Minute Maid and Dasani Water. Also, the company just rose five spots to No.94 on the Fortune 500 list of companies.

Coca-Cola's market cap is $120 billion and it has a dividend yield of 2.7%. Based on forward earnings, Coca-Cola trades at 20.2-times 2007 EPS and 18.4-times 2008 EPS. On a static basis, this compares to lows in 2003 of $37.01. Also, on a static basis, this compares to highs north of $80 back in 1998; However, on a dividend-adjusted basis, the highs would be roughly $72.96.

What's up for PepsiCo?
While PepsiCo and Coca-Cola are direct competitors in the beverage sector, they actually differ in that Pepsi derives some 30% of its revenues from food products in Frito-Lay and Quaker Foods.

Pepsi's carbonated beverages may have peaked, or at least stalled, but its Aquafina and Gatorade brands have been a winner for the company. It also recently acquired Naked Juice to add to its stable of strong performers. In the non-carbonated beverage arena, Pepsi is winning with a 48.9% of market share compared to Coke's 25.4%.

PepsiCo also rose on the Fortune 500 list this year, jumping two spots to a rank of 63. Pepsi's market cap is $107 billion and it has a dividend yield of 1.9%. (To learn more on this subject, see Market Capitalization Defined.)

Based on forward earnings, PepsiCo trades at 19.8-times 2007 EPS and 17.9-times 2008 EPS. PepsiCo is still trading south of the $66.00 handle, just under its 52-week high of $65.99.

Which is the Better Value?
Coca-Cola is more of a pure-play in the beverage sector, while Pepsi is essentially two companies -- arguably three. If Wall Street continues its push toward "unlocking shareholder value", then PEP would have more spin-off abilities than KO as far as unrelated units or non-core operations. PEP is marginally cheaper than KO on current P/E ratios and on forward P/E ratios, but that is because of the food units. The distinct advantage that Pepsi has in its snack brands is that it's trying to go healthier. Although, calling its snacks "health food" would be a bit of a stretch.

What Else is There to Look For?
Coca-Cola's "Zero" launch was touted as the big win for earnings due to its case volumes. These gains may have come at the expense of the competition -- Pepsi's own line of low-cal diet drinks. The good news is Pepsi has plenty of other operations to absorb this, and it is more diversified because of current and future food products.

Both balance sheets are in similar shape, yet the dividend differential is where PepsiCo could play some catch-up.

With the recent performance seen in Jones Soda (Nasdaq: JSDA) and with the past performance of Hansen Natural Corp. (Nasdaq: HANS), it's getting pretty hard to ignore the beverages sector. Perhaps these aren't simply defensive stocks after all.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center