Drink in the Profits with this Worldwide Powerhouse
Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coca Cola (NYSE: KO) owns the most popular beverage brands in the world, including Coke, Diet Coke, Sprite, Fanta, Dasani, Vitamin Water, and Powerade. Overall they own a portfolio of over 3,500 beverages, 800 of which are low-calorie and no-calorie. Coca Cola has shown that they are dedicated to the products that got them where they are, as well as producing new ones for the growing population of health-conscious people.
With a market cap of $168.4 billion, Coca Cola is about $56 billion larger than their top competitor, PepsiCo (NYSE: PEP). PepsiCo owns brands such as Pepsi, Mountain Dew, Sierra Mist, Gatorade, Tropicana, and Aquafina. PepsiCo has been growing consistently, but their brand recognition is not as strong as that of Coca Cola. In fact, Coca Cola was named the world's most recognizable brand by Businessweek.
Another notable competitor is Dr. Pepper Snapple Group (NYSE: DPS). Dr. Pepper Snapple Group is strong financially and has a great portfolio of brands, including Dr. Pepper, Snapple, 7-Up, A&W, Yoo-Hoo, Sun Drop, and Vernors. They are much smaller than Coca Cola and PepsiCo, and do not have the potential to gain much market share in the near term. Both of these competitors have potential to gain share, but they must bump up their acquisitions as well as research and development of new products. It seems that everything Coca Cola touches turns to gold, and these other two companies need to formulate a plan to do the same.
As of Feb. 2, Coca Cola has become an incredible value play. The current price is $37.38, which is 7.68% below is 52 week high of $40.67 reached on July 31, 2012. They are trading at just 19.6 times earnings and 17.3 times forward earnings. Coca Cola is projected to have earnings per share of $2.19 in 2013, which represents a 9.5% growth compared to 2012, and 14.1% compared to 2011. With the Coca Cola's product line continuing to grow through both R&D and acquisitions, I believe that these estimates can easily be surpassed.
Coca Cola pays out an annual dividend of $1.02, or 2.72%. Pepsico and Dr. Pepper Snapple Group currently yield 3% each, beating out Coca Cola. 2.72% is a good yield, but the fact that Coca Cola has raised their payout for 50 consecutive years makes the dividend much more valuable because investors know it will continue to grow. This shows that they are dedicated to returning value to their investors. Pepsico has raised their dividend for 42 consecutive years, while Dr. Pepper Snapple Group has only raised theirs for 2 years. Overall, Pepsico has the best dividend due to yield and history of increases, followed by Coca Cola, and then Dr. Pepper.
In the last 3 months, Coca Cola is up 1.24%, PepsiCo is up 5.24%, and Dr. Pepper Snapple Group is up 5.36%. In this same time frame, the Dow Jones Industrial Average is up 8.78%. The underperformance of the sector and overall market leads me to believe that Coca Cola is poised to rally in the coming months. I see a return to $40 per share in the next 3 months, and a rise to $43.80 by the end of 2013, based on 20 times earnings. This would bring the yield down to 2.3%, so I also believe that the dividend will be raised to $1.20, bringing the yield back to 2.75%. Pepsico and Dr. Pepper Snapple Group should continue their run up, with PepsiCo poised to be the top performer in the space. I am initiating an outperform on CAPS for Coca Cola. PepsiCo and Dr. Pepper are buys, but Coca Cola is a STRONG BUY.
JoeySolitro1 has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!