The Coca-Cola Co (NYSE: KO) and PepsiCo, Inc. (NASDAQ: PEP) both enjoy an attractive market share across attractive categories so there is "merit" to owning either stock, according to Atlantic Equities.
Atlantic Equities' Edward Lewis initiated coverage of Coca-Cola's stock with an Overweight rating and $62 price target. The analyst initiated coverage of PepsiCo with an Overweight rating and $145 price target.
Coca-Cola: Major Transformation
The bullish case for Coca-Cola is based on management's continued shift away from sparkling soft drinks (SSDs) towards a complete beverage company across both hot and cold categories, Lewis wrote in a note. Coca-Cola and its bottling partners are "aligned like never before," which better positions the company to take advantage of new opportunities.
Lewis said Coca-Cola's performance over the past few years is both consistent and encouraging, highlighted by eight consecutive quarters of more than 4% organic sales growth. By region, 70% to 80% of sales and operating income come from outside of North America with notable exposure to faster growth regions in Latin America and Asia-Pacific.
At a time when the consumer staples companies are merely showing signs of recovering Coca-Cola stands out amid expectations for 5% organic sales growth of 5%, operating income growth of 8% and earnings growth 10%.
PepsiCo: Delivering On Key Priorities
PepsiCo's management team led by recently appointed CEO Ramon Laguarta continues to work on improving multiple segments, including the snack division Frito-Lay North America (FLNA), Lewis wrote. The company controls a 19% market share in the global micro snacks market, which implies plenty of room for further growth.
Meanwhile, Pepsi Beverage North America (PBNA) reversed a "recent slump" in the key developing marketsw, hich is now showing a high-single digit sales growth.
Lewis said fiscal 2019 will likely prove to be a year of earnings "reset" as management increases the pace of multiple investments in business units, the analyst wrote. Backed by a strong balance sheet, an attractive dividend, share buyback program and a strong record of preferring organic growth over acquired growth, the stock can sustain a premium valuation over rivals.
Coca-Cola Over PepsiCo
Coca-Cola and Pepsi each boast a similar outlook of mid-to-high-single digit organic sales and EPS growth even though there are many contrasts between the two. Between both names Coca-Cola's stock offers a potential 15% return versus PepsiCo at 11%. Nevertheless, relative to other consumer names there is sufficient reason to own both names.
At time of publication, shares of Coca-Cola were trading at $54.10 while PepsiCo shares were trading at $131.42.
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