NEW YORK (TheStreet) -- In the wake of earnings reports by major food and beverage giants this week, we asked readers of TheStreet, which will pop: Pepsi (PEP) - Get Report, Coke (KO) - Get Report or Dr Pepper Snapple (DPS) ?
In keeping with the spirit of the decades-long rivalry between the two companies, the number of votes in favor of PepsiCo and Coca-Cola were nearly evenly split, with 41.1% of the votes going to PepsiCo and 41.7% of the votes going to Coca-Cola. Dr Pepper Snapple received 17.2% of the votes.
This week, both Coke and Pepsi reported better-than-expected second-quarter earnings -- which included better-than-expected outcome in the U.S. amid improvements in convenience store trends, favorable weather and aggressive Wal-Mart-funded promotions, as UBS analysts noted. Also, Pepsi's Frito-Lay North America snacks division rose 2% in revenue during the quarter.
"While we do not expect this promotional environment to continue past Labor Day, we do believe the soft drink category is regaining momentum and is off to a solid third-quarter start," UBS analyst Kaumil Gajrawala wrote in an investor note.
UBS analysts reiterate their buy rating and $76 and $62 price targets for both Pepsi and Coke, respectively. However, they have modified their earnings per share estimates to $4.16 vs. $4.18 previously for Pepsi due to the expectation of a foreign exchange hit; and $3.45 vs. $3.43 previously for Coke as stronger-than-expected second-quarter results are also offset by foreign currency impact.
Ahead of Dr Pepper Snapple's earnings release on Jul. 29, before the market open, UBS has downgraded the stock to neutral from buy.
"DPS shares have outperformed the S&P 500 over the last 1 month, 3 months, and year-to-date rising nearly 35% since January 1st as they have benefited from share gains and more importantly two one-time payments from Coca-Cola and PepsiCo totaling over $1.5 billion that will be returned to shareholders," Gajrawala said in an equity research report. "DPS shares are now trading at 15.7 times 2010 EPS estimate, a premium to both Coca-Cola and PepsiCo, which we don't believe is justified given Coca-Cola and PepsiCo have stronger long-term growth opportunities across emerging markets." The analyst said however, that the downgrade is not a call on Dr Pepper Snapple's underlying business trends.
As the company was negotiating its bottling acquisitions late last year, PepsiCo reached an agreement with Dr Pepper Snapple to manufacture and distribute certain Dr. Pepper Snapple products in territories where they were being distributed by Pepsi Bottling Group and PepsiAmericas for an upfront payment of $900 million.
Recently, Dr Pepper Snapple also agreed to license certain brands to Coke on completion of the soda giant's proposed acquisition of
North American bottling business for a one-time cash payment of $715 million.
Best in Class: Pepsi's Plan for Global Domination
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-- Reported by Andrea Tse in New York
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