PepsiCo, Inc. (PEP): The Giant Becomes a Super Giant

Competitors

On Feb. 12, Coca-Cola released its earnings for the fourth quarter of 2012. The company earned $0.41 per share, up 13% from the same quarter last year. The company is currently trading at a forward P/E (1-year) of 15.61x and has a dividend yield of 2.7%. It has a PEG of 2.02 and a growth rate of almost 9.3%; hence, a strong PEGY of 1.56.

Using earnings multiple in the case of Coca-Cola, I value it around $43. Therefore, it has an upside potential of almost 17%. Adding its dividend yield into this upside potential, I get to a total return of almost 20%. Hence, it’s a perfect buy at this point in time. You can have a further look at my detailed take on Coca-Cola here.

Dr Pepper Snapple Group Inc. (NYSE:DPS) announced its earnings for 4Q12 on Feb. 13. The company reported earnings of $0.82 per share on revenues of $1.48 billion. Analysts had expected DPS to earn around $0.85 per share. As a result, the stock was down more than 6% after the announcement.

The main reason behind DPS missing its estimates was a below par performance in the North American region. Moreover, the company expects to earn below analysts’ forecast in 2013 amid high raw materials cost. DPS is currently trading at $42.80 and has a mean recommendation of 2.6 on the sell side; hence, it doesn’t seem to be an attractive buy. Moreover, as it’s facing tough competition from the big two, it won’t be easy for the company to mint substantial profits in the years ahead. Hence, I remain neutral on Dr Pepper Snapple Group.

Conclusion

There is still a lot of growth potential in the carbonated soft drinks industry other than the colas. The colas haven’t shown substantial growth in the past few years as consumers have been able to find good substitutes in the beverage market. As a result, PepsiCo’s investing a lot on its non-cola segment.

Currently, PepsiCo has some of the best brands in juices, isotonics, ready-to-drink teas, coffees and waters. These products have not only done well in the past few years but are expected to do really well in the coming years. Further, the company has some great upcoming products that are currently going through FDA review. Once these products get into the market, PepsiCo’s profits would definitely get multiplied. As a result, PepsiCo is expected to outperform its competitors in the coming years. Therefore, PepsiCo along with Coca-Cola are the best buys in the beverage industry. In short, I recommend buying PepsiCo for an upside of at least 17%.

The article The Giant Becomes a Super Giant originally appeared on Fool.com and is written by Waqar Saif.

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