PepsiCo, Inc. (PEP), Sodastream International Ltd (SODA): How This Small Company Plans to Replace The Coca-Cola Company (KO)

Finally, SodaStream’s strong income flow is also worth mentioning. The company grew net income by 36.1% last quarter, pushing it up to $12.9 million. Diluted EPS grew 33.3% to $0.60 per common share.

Source: Oldschoolvalue

Coca-Cola and PepsiCo won’t give up easily
In early July, Israeli media stated that both Coke and PepsiCo, Inc. (NYSE:PEP) were interested in buying this disruptive force in the beverages industry.

According to a Barclays report, it makes “strategic sense” for PepsiCo, Inc. (NYSE:PEP) to shop for SodaStream because the company’s well-protected barriers to entry guarantee a safe business for many years. With $6.7 billion in cash, Pepsi has enough firepower for a SodaStream acquisition.

The Coca-Cola Company (NYSE:KO), with its $9.2 billion, may also be interested. In theory, by using its distribution network (which covers more than 200 countries), the company could take SodaStream’s products to the shelves of most stores in the world, causing a growth explosion in SodaStream’s revenue base.

However, in practice things are more complicated. Both from the point of view of The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP), SodaStream’s products are clearly substitute goods. Strengthening SodaStream’s business could come at the expense of losing sales in the traditional soft-drink bottling segment due to cannibalization.

The good news is that both Coca-Cola and PepsiCo, Inc. (NYSE:PEP) look well prepared to fend off declining sales in the carbonated-drinks segment. The Coca-Cola Company (NYSE:KO) acquired European juice brand Innocent early this year  in order to diversify its revenue base. This is a strategic move, considering consumers are getting increasingly more concerned about health issues. At the end of 2012, Innocent reported a 37% rise in sales.

Pepsi, on the other hand, owns juice brand Tropicana and, more importantly, controls almost 40% of the world’s salty snack market through its Frito-Lay division.

Final Foolish thoughts
SodaStream is a superb growth stock. It’s product promises to become a disruptive force in the soft-drink industry. According to official projections, revenue is expected to surpass $1 billion by 2016. And considering net income remains high, this company will eventually create very strong cash flow. Also, an acquisition by either Pepsi or Coca-Cola remains a strong possibility, though both companies would need to pay an elevated premium. In any of these scenarios, I see plenty of reasons to be long this stock.

The article How This Small Company Plans to Replace Coca-Cola originally appeared on Fool.com and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and SodaStream. The Motley Fool owns shares of SodaStream.

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