Pepsi vs. Coke: Analyst Weighs In




By Katie Little, Special to CNBC

NEW YORK ( CNBC) -- Although PepsiCo ( PEP) may have more upside than Coca-Cola ( KO), PepsiCo stock also carries additional risk for investors, said John Faucher, senior U.S. beverage analyst at JPMorgan Chase.

In an interview with CNBC's "Squawk on the Street," Faucher discussed Coca-Cola's first-quarter earnings release. The company reported profit and revenue that beat analysts' forecasts on Tuesday.

"I was impressed with certain things," he said. "I think the volume growth certainly was slightly better than expected. The margin leverage was a little bit weaker. We've seen that over the past couple of quarters."

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Faucher has a "neutral" rating on Coca-Cola stock, with a $76 price target. He attributed some of the 2% rise in its shares today to lagging expectations for consumer staples.

"I think that what really happened here was, along with the rest of consumer staples, expectations had come down in the last couple of months," he said. "The group has lagged. It's not pricing in a lot of good news, so when you see something that's a little bit better on the margin, you're going to see stock prices like this."

If the company showed additional operating leveraging and profit to accompany its volume, Faucher said he would get a bit more excited about Coca-Cola. Still, he said the company offers more safety to investors than PepsiCo.

"Pepsi, there's no question that's there's more risk," he said. "They've really suffered from an execution standpoint, but the stock's cheaper, probably about 12% cheaper from that standpoint, so if they execute a couple of things correctly, you could really start to see this move up."

In a separate interview, Mark Swartzberg, a beverage analyst at Stifel Nicolaus, told CNBC his firm downgraded Coke to "hold" from "buy" in early April because the stock was already in line with historic valuation levels.

"If you go back far enough, you'll realize it was trading at a much higher premium than we've seen over the last five years," Swartzberg said.

The company had a premium "well above 50%," compared to the current high of 20%.

But Swartzberg does feel optimistic about the "balance across geographies" that the beverage maker has exhibited.

"What I would highlight is the fact that we saw every single region grow," Swartzberg said. "Not only that, but in some developed markets -- Japan and North America, for example -- there was still some upside," he said.

--Written by Katie Little at CNBC
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