Week Ahead: Coke vs. Pepsi Investor Taste Test (KO, PEP)

February 7, 2009 by Douglas A. McIntyre

This coming week will mark the earnings reports for two key household consumer stocks, both of which were supposed to be defensive.  The Coca-Cola Company (NYSE: KO) reports earnings on Thursday and Pepsico, Inc. (NYSE: PEP) is set to report earnings on Friday, February 13, 2009.

The estimates on Coca-Cola are as follows:
Q4-08     Q1-09     FY-08        FY-09
EPS          $0.62      $0.66      $3.13        $3.21
Revenue    $7.63B    $7.36B    $32.54B    $33.32B

Coca-Cola shares closed up 2% at $43.55 Friday, and their 52-week trading range is $40.29 to $61.90.  With a $100.7 billion market cap, the company trades at an expected 3.1-times 2008 revenues and right at 3-times expected 2009 revenues.  Coca-Cola also trades at 13.9-times2008 expected earnings and 13.6-times 2009 expected earnings.

The estimates on Pepsi because analysts who cover Coca-Cola may make changes on Pepsi as a result of the competitor’s earnings coming first.  The estimates are as follows:
Q4-08       Q1-09      FY-08       FY-09
EPS          $0.88        $0.70      $3.67        $3.83
Revenue    $12.83B    $8.44B    $43.43B    $44.4B

Pepsi shares closed up 2.2% at $53.53 on Friday, and their 52-week trading range is $43.78 to $75.25.   With a $83.1 billion market cap,the company trades at an expected 1.9-times 2008 revenue and 1.86-times expected 2009 revenue.  Pepsi also trades at 14.6-times 2008 expected earnings and 13.9-times 2009 expected earnings.

On the surface these two companies are thought of as Frick and Frack .But Pepsico has the snack-food business that Coca-Cola does not have.  That means that it has one more element of cost issues as well as the troubled consumer.  So as it goes in today’s world, Coca-Cola is a slightly more defensive or slightly easier to predict company.  Both companies have huge international operations, and therefore have a large currency component that a stronger dollar may actually hurt inthe conversions as most international operations have cited.

Either way, these two stocks move very close to each other.  Even in this climate, not all defensive stocks hold their value in the manner many would have hoped.  Below is the chart, furnished from BigCharts.com:

Again, these estimates are likely to change before the actual reports, and Pepsi estimates may change even more since the analysts may react off of the Coke call first.  We will furnish individual previews during the week that show more color on the charts, internals, stock optiontrader expectations, and key analyst data.

Jon C. Ogg
February 7, 2009