In the beverage industry, no one can stand up to PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) due to their massive production, distribution systems, and most importantly, the brand value attached with them. Monster Beverage Corp (NASDAQ:MNST) has successfully emerged as the world’s second-largest energy drink company (behind Red Bull). Buying the shares of these companies presents a predicament for investors as the companies are solid dividend payers. However, do they perform better than the market averages and other stocks available on the market?
Recent events
For The Coca-Cola Company (NYSE:KO), over the last five quarters, the company’s revenue has been stagnant, hovering at $11 billion quarterly. The position is getting worse for its shareholders as since Q2 2012, the EPS has been declining. However, Coca-Cola reported a better than expected EPS for the last quarter, and its current EPS is $1.97. Over the last 10 years, the company’s sales have been doubled at least. However, if the current crunch continues in the near future, any revenue growth will be stifled.
PepsiCo, Inc. (NYSE:PEP)’s stock has been up 27% over the past 12 months despite having to deal with weak North American sales like its primary competitor, The Coca-Cola Company (NYSE:KO). Similar to Coca-Cola, its EPS is also alarming about the company’s weakness as it faltered in the preceding two quarters. On revenue, PepsiCo has outperformed The Coca-Cola Company (NYSE:KO) as its quarterly sales are much higher on the back of renewed marketing efforts, including its first bottle redesign in 17 years. Its latest annual EPS stands at $3.92.
Energy drink producer Monster Beverage Corp (NASDAQ:MNST) reported disappointing first-quarter results with lower revenue growth and a failure of cost containment. Net income declined 17% when compared to the previous year. The earnings were largely short of the Zacks consensus estimate of $0.47 per share. Moreover, Monster Beverage has disappointed its investors in each of the last four quarters, with an average negative surprise of 11%.
Complaints against its energy beverages have been fairly elevated over the past years. San Francisco’s city attorney is now suing Monster Beverage Corp (NASDAQ:MNST) for marketing its energy drinks to children, saying the products provoke severe health risks.
Competition
Based on average stock market metrics, PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) look undervalued (good time to Buy), whereas Monster Beverage Corp (NASDAQ:MNST) is overvalued (good time to Sell).
| Indicator | PepsiCo | Coca-Cola | Monster Beverage |
|---|---|---|---|
| Price/Earnings ttm | 21.5 | 22.5 | 32.6 |
| Price/Book | 5.8 | 5.9 | 14.0 |
| Net Income Growth (3 Yr Avg.) | 1.3 | 9.7 | 17.7 |
| Revenue Growth (3 Yr Avg.) | 14.9 | 15.7 | 21.7 |
| Dividend Yield , % | 2.71% | 2.61% | – |
| Debt/Equity | 1.0 | 0.4 | – |
| Return on Equity | 27.1 | 26.7 | 37.0 |
| Current Price | $83. 81 | $42.98 | $59.26 |
However, there is an inherent security about PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Company (NYSE:KO) regarding their performances in driving revenues, which will fuel their stock price. PepsiCo, however, has a high debt/equity ratio. That being said, the two stocks are very closely matched. Coca-Cola’s performance has been worse than PepsiCo’s, though it does seem to be clawing its way back up for now and provides a good opportunity to buy the stock. Monster Beverage Corp (NASDAQ:MNST) has strong profitability margins that are among the strongest in a market comparison.
What does the future hold?
The Coca-Cola Company (NYSE:KO) has launched its Australian marketing campaign by printing customized names on its bottles. If Warren Buffett’s recommendation means anything, then you shouldn’t even consider selling your Coca-Cola stock. The company is now striving to maintain a healthy revenue stream in India and China. While the health drawbacks of The Coca-Cola Company (NYSE:KO) are undeniable, the company’s revenue and stock performance should continue to be strong.
In the U.S., soda consumption has been on a downward trend over the last eight years. PepsiCo, Inc. (NYSE:PEP) is moving forward to Asia, the Middle East, and Africa, with its 24% operating profit increase in Q1 2013. In addition, PepsiCo has also initiated a strategic partnership with Tingyi – one of the leading food and beverage companies in China. This helps to access the company’s distribution network and will result in profit growth.
These days, there are a lot of negative rumors about safety of Monster’s energy drinks. However, consumers will realize soon that these products actually are not so bad as feared. Monster’s strongest advantage compared to the peers is that it has more than 30 different flavors whereas Red Bull only has a few flavors.
Final verdict
Coca-Cola’s favorable price and evident growth in developing countries, due to its brand recognition, helps it lead over PepsiCo, Inc. (NYSE:PEP) at present. I suggest that the current price of The Coca-Cola Company (NYSE:KO) stock gives a good entry opportunity as well as makes the company’s stock a solid buy. For Monster Beverage Corp (NASDAQ:MNST), there is a great opportunity for sales increase in the international markets due to a large marketing presence to propel growth of the company’s multiple brands.
Marina Avilkina has no position in any stocks mentioned. The Motley Fool recommends The Coca-Cola Company (NYSE:KO), Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage Corp (NASDAQ:MNST) and PepsiCo, Inc. (NYSE:PEP).
The article Beverage Stocks: Know Your Risks, or Risk Your Future originally appeared on Fool.com.
Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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