That’s three 12-ounce cans of PepsiCo, Inc. (NYSE:PEP) . Let’s look at these soda companies and maybe it will help us understand why America is struggling with obesity-related diseases such as diabetes.
A 12-ounce can of The Coca-Cola Company (NYSE:KO) has 10 fewer calories than the same- sized can filled with Pepsi. In the area where I’m from, a 12-ounce can of Coke costs about $0.75. Coke generated enough revenue last year to account for more than 64 billion cans of coke. That’s a lot of cans, and it’s even more calories.
In fact, that would equate to approximately 8.9 trillion calories. There are about 7.1 billion people in the world, so if every person in the world consumed the same amount of Coke there would be approximately 1,262 calories of Coke consumed by every person. That is slightly more than nine cans of Coke for every person each year. Keep in mind, this is just Coke.
Okay, so we will get on to more relevant things now, but hopefully that helped put the soft-drink industry into perspective.
Show down
The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) have been lifetime (at least for me) competitors. Coca-Cola’s market cap is nearly 48% larger than PepsiCo’s, despite PepsiCo selling many food products, as well.
Coca-Cola’s profit margin is 60.3%, while PepsiCo, Inc. (NYSE:PEP)’s is 52.2%. Both companies have experienced nine revenue increases in the past 10 years, along with PepsiCo’s seven years of increased earnings per share (eight from Coca-Cola). It becomes obvious just how well these companies are doing.
Although dividend yields are virtually identical, PepsiCo, Inc. (NYSE:PEP) does edge out its competitor by 0.1% posting a 2.6% dividend yield. PepsiCo seemingly has the upper hand when it comes to comparing metrics in several different areas.
In fact, PepsiCo, Inc. (NYSE:PEP)’s inventory turnover is about 8.5 compared to The Coca-Cola Company (NYSE:KO)’s 6. Coca-Cola’s FCF yield is 4.2%, while PepsiCo’s is 5.6%. Pepsi seems to provide slightly better value for investors, but both companies are selling products in more than 200 countries.
Earnings yield present a show down, as both companies show an earnings yield of approximately 4.7%. Maybe the best opportunity for investors lies in a company that receives its profits from the potential side effects of too much soda.
The result
Novo Nordisk A/S (NYSE:NVO) is a company that strives to “defeat diabetes by finding better methods of diabetes prevention, detection, and treatment.” It’s a company with a market cap of $95.1 billion. What does this have to do with drinking soda?
Well, we all read how many calories are in soda and we all know people that drink more soda than water. While some people would argue that this is due to eating habits, I certainly don’t believe that sugar-sweetened beverages decrease the rates of obesity. The charts below show the correlation of obesity and diabetes.
Opportunity
So, what does a company like Novo Nordisk have to offer investors? In short, a lot. Revenue has increased annually for over a decade while earnings per share dropped only in 2007. The company offers a dividend yield of 1.3%, nearly triple that of the industry average. Its stock offers investors quite the bargain, as its free cash flow yield is a solid 22%. Gross margins are 82.1%. Not bad for a company trying to right a wrong.
If trends continue in the way they are headed, the Center for Disease Control and Prevention expects one-in-three Americans to have diabetes by 2050. While I would never wish diabetes on anyone, imagine what a company like Novo Nordisk would do with that many more people available in its market. Often times, a company will appear very cheap because of a falling stock. This is not the case with Novo Nordisk.
Invest in Coca-Cola and PepsiCo?
Although The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) may not be as cheap, or appear to have as great of an opportunity as Novo Nordisk, they should appeal to some investors. More than half of PepsiCo’s revenue, and more than 60% of Coca-Cola’s revenue, are derived from overseas sales. America’s numbers have dropped off, while foreign numbers continue to rise. Foreign markets are driven largely by China, Russia, Latin America, and Africa.
Also, these companies are starting to focus more on healthier products to market to their more health-conscious consumers. For instance, The Coca-Cola Company (NYSE:KO) now sells Dasani water, Powerade, Honest Tea, and Simply Orange. Both companies are trying to figure out a way to make a soft-drink beverage that tastes the same, while eliminating the calories.
The Foolish bottom line…
While I wouldn’t expect The Coca-Cola Company (NYSE:KO) or PepsiCo, Inc. (NYSE:PEP) to struggle, only one of these three companies has the highest FCF yield, the most consistent revenue and earnings- per-share increases, the highest gross margins, and the best-performing stock. Whichever company can increase sales in healthier products will likely make it a better “buy.”
Dividend yield is about the only thing that Coca-Cola and PepsiCo have bragging rights to. Maybe soft drinks, fast food, and sedentary lifestyles are what made Novo Nordisk the world’s most “sustainable company” on Business Magazine’s 2012 list. These products/lifestyles all lead to obesity, which often leads to diabetes, which should lead to greater investment opportunities for companies operating in the field of diabetics, such as Novo Nordisk.
The article One Soda a Day Keeps Your Health Away originally appeared on Fool.com.
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