Which company is better to invest in, Coke or Pepsi - Term Paper Example

Although on the surface Coca-Cola and Pepsico appear to be quite similar there are some distinct differences between the two companies. Coca Cola isthe world's largest non-alcoholic beverage company with a market capitalization of $147 billion. The company distributes over 500 non-alcoholic beverage brands. Coca-Cola owns and markets four of the top five non-alcoholic sparkling beverage brands in the world including Coca-Cola, Diet Coke, Fanta and Sprite. Unlike Coca-Cola which is concentrated almost exclusively on beverages, a considerable portion of PepsiCo's product portfolio is in their macro snack division.

The company offers over 200 refreshment brands worldwide. Some of their strengths are their youth oriented “New Generation” brand image which helps develop a long term customer base and their strong franchise system helped Pepsi become one of the leaders in the industry. With a market capitalization of $101 billion and major brands such as Frito-Lay, the number one snack product brand in the industry, and popular brands such as Gatorade, Quaker, Tropicana, and Pepsi their product portfolio is much more diversified.

As a consequence growth opportunities are far superior for PepsiCo compared with Coca-Cola. Although excellent growth opportunities abound for Pepsi in their snack food business as a whole, the company is much more susceptible to rising commodity prices, therefore it is more exposed to commodity price fluctuations compared to Coca-Cola. Even though Coca-Cola's stock price has outperformed PepsiCo for the last few years, the tide may be turning towards PepsiCo in the near future. For the 2009 fiscal year PepsiCo outperformed Coca-Cola's revenues by close to 40%.

In 2010 the company achieved 64% higher revenues than Coca-Cola. For 2010 PepsiCo reported a revenue growth of 33.8% (Annual Report: Pepsi). Earnings grew 9.7% and achieved stock yield of close to 3%. Their EPS grew 12% to $4.13. Gross margin increased 35% and increased net income by 6.2%. For fiscal year 2010 Coca-Cola stock yielded 2.77% and increased in earning per share by 14% to $3.49 (Annual Report: Coca Cola).Their revenues grew 13.3% and earnings increased by 10%. PepsiCo's stock trades at a P/E ratio of 14.

1 a discount compared with Coca-Cola’s P/E ratio of 16.1. Coca-Cola’s acquisition of the North American division of CCE (Coca-Cola Enterprises) increased the firm’s income by 73%. This acquisition should enable to further streamline their distribution network, increase operational efficiency, and profitability. The associated costs of organizing and integrating their new CCE division to their corporate structure represent expenses and additional risks that could negatively affect their in the future financial performance.

Both companies enjoy a high level of customer acceptance, brand recognition, financial performance, unmatched global distribution network, and strong commitment of their managers, associates and business partners. Since both companies operate in a global business environment they are exposed to a multitude of risks from currency risks to environmental and social-political factors. As stock investment PepsiCo seems better positioned as an investment in the long haul due to their product diversification, strong financial performance, and brand Image tailored for the young ”New Generation.

” The company seems to be in a better position to achieve their long term performance goals, therefore making PepsiCo a better stock investment in the long haul. Coca-Cola PepsiCo 2010 2009 2010 2009 Net income $11,809 $6,824 $6,320 $5,946 Expenses $13,977 $11,671 $22,931 $15,089 Gross Profit $22,426 $19,902 $31,263 $23,133 Total Assets $72,921 $48,671 $68,153 $39,848 Total Liabilities $41,918 $23,872 $46,989 $23,044 Total stockholder's equity $31,003 $31,003 $21,164 $16,804 Works Cited Page “Annual Report: Coca Cola.” 2010. 8 March 2011.

< http://www.thecoca-colacompany.com/investors/pdfs/form_10K_2010.pdf> “Annual Report: Pepsi.” 2010. 8 March 2011. < http://www.pepsico.com/Investors/SEC-Filings.html>