NEW YORK (TheStreet) -- Pepsico (PEP - Get Report) is trading at $85, up nearly 3% for the year to date Thursday, after beating on the top and bottom lines. The company posted 4% or better organic growth in each business segment for the first quarter and saw margins increase.
Coca-Cola (KO - Get Report), on the other hand, continues to get by based on bare minimum expectations. On Tuesday, the company reported in-line earnings and ever-so-slightly beat revenue expectations. Its valuation metrics look unappealing.
Both are embroiled in the cola wars but Pepsico has diversified beyond soda, owning brands Tropicana, Lipton, Aquafina and Gatorade.
On the snack side -- the growth driver -- Pepsi has Quaker, Doritos, Ruffles, Lay's, Tostitos and Sabra.Now look at Coca-Cola. While globally the Coke brand may resonate more with consumers, the company continues to depend heavily on soda sales and doesn't have snack exposure. Brands like Minute Maid, Powerade, Vitamin Water, and Dasani are all familiar enough. But the company needs to make a bigger move. It needs a new product or product line. Perhaps this can be done through a merger with a brand that consumers already know, trust and enjoy. Consider now that Coca-Cola trades with a forward price-to-earnings multiple of 18.12. This is after the company reported in its most recent earnings results that revenues fell 4.3% year over year and earnings per share fell roughly the same amount. Pepsico, on the other hand, grew revenue -- albeit, barely -- 0.3% year-over-year. But at least sales increased. It also grew earnings per share by 7.5% year over year. From a valuation standpoint, Pepsi also trades at a cheaper 17.30 times next year's earnings. I don't think Coke is doomed. It's just not a cheap stock by valuation compared to its counterpart on almost any metric: price-to-earnings (on a trailing or forward basis), price-to-sales, PEG ratio, and even on its dividend payout ratio. However, with Coca-Cola's 10% stake in Keurig Green Mountain (GMCR), there lies some growth potential. The beverage behemoth will never go away and it's still a solid stock to hold over the long term. But instead of waiting and hoping Coca-Cola generates growth in the near term, I would rather own Pepsico. The stock is cheaper, the dividend yield of 2.7% is nice and its products offer more diversification. Maybe Coca-Cola will unlock the answers for growth. But for now, owning Pepsi simply makes a lot more sense.
At the time of publication, Kenwell didn't own any shares of the companies mentioned.
Follow @BretKenwell This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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