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Coke and Pepsi May Be Losing Their Fizz

The analyst consensus estimate for sales revenue for the fourth quarter of 2012 is $11.54 billion, an increase of 4.6% over the year-ago same quarter. Earnings (EPS) are estimated to have risen 12.8% to 44 cents per share. KO will be under tense scrutiny to come close to or exceed these numbers.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

Pepsico is also feeling the pinch from declining soda sales, but not as much as Coke, which derives about 60% of revenue in the U.S. from carbonated soft drinks. PEP has a wider array of other products including such food brand names as Lays and Ruffles potato chips, Doritos and Tostitos tortilla chips, Cheetos cheese flavored snacks, branded dips, Fritos corn chips, SunChips multigrain snacks, and Santitas tortilla chips in North America.

In addition, PEP makes money selling Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker Chewy granola bars, and Quaker grits, Captain Crunch cereal, Life cereal, Rice-A-Roni side dishes, Quaker rice cakes, Pasta Roni, and Near East side dishes throughout North America.

Let's look at PEP's chart.

PEP ChartPEP data by YCharts

Even though PEP's revenue per share plunged through the end of October 2012, the share price movement suggests that when it reports fourth-quarter revenus and EPS on Feb. 14, analysts and shareholders will like what they hear.

The analyst consensus estimate for PEP's sales revenue for $19.65 billion, less than 1% improvement over the same quarter in 2011. EPS average estimate calls for $1.05, which would be an 8.7% decline from the year-ago quarter.

If that news is already baked into PEP's share price, there's probably an opportunity here for an upside surprise since expectations are so measly.

PEP pays a current annual dividend of $2.15, which represents a payout ratio of 56%. With over $6 billion in levered free cash flow that dividend looks sustainable. At a $71.84 share price this would mean a yield-to-price of a delectable 3%.

PEP shares sell at around 16 times forward earnings compared to KO's forward PE of 17. KO's current dividend payout ratio is 52% with $6.4 billion in levered free cash flow. Its current yield-to-price is a slightly less desirable dividend yield of 2.75%.

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