It's the age-old matchup of Coca Cola vs PepsiCo. This time the question isn't which soft drink tastes better, but it is which company's stock is cheaper on a valuation basis. The Coca Cola Company (NYSE:KO) is second to none when it comes to brand name and moat, but PepsiCo (NYSE:PEP) has been showing tremendous growth in the past few years. Which one is the better value in today's market? To the numbers we go:
Coca Cola Pepsi
Forward P/E 19.85 19.72
PEG Ratio 2.35 1.95
Price/Sales 5.11 3.25
Price/Book 7.06 7.49
Cash per share $1.96 $1.15
Looking at the numbers we see something that most outside observers would probably expect, the two companies are quite similarly valued on most measures. The Forward P/E ratios are almost identical and the price/book ratios are very similar as well. Coca Cola has more cash per share on hand than does Pepsi. Pepsi has a distinct advantage in the PEG ratio valuation as well as the price/sales valuation.
Given the fairly substantial advantage in the PEG Ratio I have to give Pepsi the edge. Pepsi is a company that is really hitting on all cylinders of late. The acquistions of the past few years of Quaker Oats, Frito Lay, etc. have been tremendous for the company. Pepsi has done a better job than Coca Cola has to diversify its assets.
Having said all of that, it's hard to go wrong with a company like Coca Cola. The moat at that company is terrific and the balance sheet is as sound as you will see. For the record, though it is unrelated to this valuation analysis, I personally prefer a Coca Cola Classic anyday over a Pepsi.
While I'm a Coca Cola drinker, I'd have to say that on a valuation basis, Pepsi deserves the edge.
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Pepsi does look slightly better by the numbers but Coke should see a nice increase in sales from Vitamin Water. Vitamin Water is everywhere and people all over love the stuff!
Posted by: Market Flavor | October 3, 2007 11:06 AM | Permalink to Comment