Pepsi, who once held blind taste tests to draw consumers to its soda, has since diversified into potato chips and other snacks with its Frito-Lay subsidiary. Coke has branched out into energy drinks, juices and tea, but its trademark cola is still the Atlanta-based company's key revenue generator.
Pepsi has built a product roster that's filled with the top names in junk food, but Coke's success in the beverage business makes it a better long-term bet. Coke continues to gain share in the drinks market and has been rewarding investors with better share performance. Coke also has one of the world's best-known brands and the endorsement that comes from being a long-time portfolio holding of Warren Buffett's holding company Berkshire Hathaway (BRK.B).
Coke stock has appreciated 28% in the past 12 months, ranking among the best-performing Dow components. Pepsi has risen a more modest 8.2% and is up 4.8% in 2011, slightly more than the benchmark S&P 500 Index. Coke has outperformed Pepsi in spite of its lumbering market value of $155 billion, compared to Pepsi's $108 billion. Coke will announce its second-quarter performance on Tuesday before the market opens. Pepsi is due to report its results on Thursday. Coke is forecasted to report an 8.7% increase in per-share earnings and sales growth of 43%, compared to Pepsi's 14% and 12%, respectively, according to estimates.
Last quarter, Coke's gross margin and operating margin came in at 68% and 23%, respectively, ranking in the 92nd and 85th industry percentile. Pepsi's margins hit 58% and 15%, lagging Coke's spreads. Pepsi is trading at a trailing earnings multiple of about 18, marginally above its five-year average. Coke, on the other hand, is selling at a trailing multiple of 13, a 33% discount to its five-year average, and a 26% discount to its average peer.Coke currently pays a quarterly dividend of 47 cents, translating to an annual yield of 2.8%. The dividend has grown 8.1% and 9.1%, annually, over a three- and five-year span, respectively. Pepsi's dividend growth has matched Coke's over a three-year span, but outpaced its expansion over a five-year period, during which Pepsi's dividend grew at an annualized pace of nearly 13%. Pepsi's current yield is also higher, at about 3%. Still, analysts, in aggregate, favor Coke's stock. The Atlanta-based bottler receives "buy" recommendations from 81% of the analysts who follow the equity, more than Pepsi's 70% proportion.
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