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Introduction:

Soda, tea, coffee, bottled water and fruit juices, we all consume them to some extent in our daily lives. For a long time now Pepsi and Coca-Cola companies have been fighting it out to be the top dog in the drink industry. While Pepsi and Coca-Cola have been targeting each other many other companies in the same industry have started to carve out a section of this market for themselves. In the below section I will outline a few of the important data points relevant to each company and discuss each one's position in the broader drink market. I will break these companies into two groups for the purpose of this article. The expansive drink companies that focus on a wide array of brands and markets, and the specialty drink companies that are more focused on a particular segment of the drink market. Some of the specialty drink companies have even been rumored as takeover targets possibly by one of the larger expansive drink companies.

Expansive Companies

Coca-Cola Company (NYSE:KO)

Company Commentary: Coca-Cola has long been the industry leader in the caffeinated beverage industry. It lays claim to the two most consumed beverages with its Coca-Cola and Diet Coca-Cola brands, which own both the number one and two positions respectively. Coca-Cola is the clear market leader for the beverage industry. It continues to see its brand expand overseas in foreign markets as well. If you would like to see all the brands under the Coca-Cola label please click here.

Key Fundamentals and Highlights:

Dividend YieldDividend Payout RatioQuarterly Dividend PaymentDividend Increase Since 2010
2.6%52%$0.2827%

KO pays a solid 2.6% dividend that in no way stresses the company when you consider the 52% payout ratio. KO also has demonstrated a solid commitment to growing its dividend over time as evidenced by its 27% growth rate.

20082009201020112012
Revenue31.94B31.07B35.14B46.77B48.02B
EPS$1.25$1.47$2.53$1.85$1.97
Shares Outstanding4.67B4.66B4.67B4.65B4.58B

KO unlike many companies over the last five years has seen revenue growth. KO has been able to translate this revenue growth into EPS profitability for its investors. This is the reason that in most experts' Opinions KO is the standard by which performance in this sector is measured. Not only was it able to increase revenue flow but it was also able to turn that increase into profitability for its investors. This ability is clearly rewarded by investors evidenced in the table below that shows KO has outpaced the performance of the Dow Jones Industrial Index, an index that it is also a member of.

Performance:

(click to enlarge)

Above is the stock price performance for KO since 2008 compared to the Dow Jones Industrial Index. KO has outpaced the broader index over the last five years.

PepsiCo Incorporated (NYSE:PEP)

Company Commentary: Pepsi has long played second fiddle to Coca-Cola's brand dominance. Now it is actually playing third fiddle. Diet coke has recently passed Pepsi's namesake brand soda for the number 2 most consumed soda beverage. Pepsi in recent years has sought to redefine its purpose as a company seeking to provide healthier alternatives of its drink and snack food brands. Pepsi is also the owner of Frito Lay brand snacks which has been quite profitable for Pepsi contributing 3.6 billion dollars in profit for the year end, which accounted for more than 50% of 2012 total profit. If you would like to see all the brands under the Pepsi label please click here.

Key Fundamentals and Highlights:

Dividend YieldDividend Payout RatioQuarterly Dividend PaymentDividend Increase Since 2010
2.8%55%$0.54%19

PEP does have a higher yield than KO, but it also pays out more of its profit and has not shown the same growth rate in dividend payments that KO has.

20082009201020112012
Revenue43.25B43.23B57.84B66.5B65.49B
EPS$3.21$3.77$3.91$4.03$3.92
Shares Outstanding1.6B1.58B1.61B1.6B1.58B

PEP unlike many companies over the last five years has been able to grow its revenue significantly. Even with this growth, PEP has shown an inability to translate this increase in revenue into a reflective increase in shareholder profit. PEP will need to focus on increasing margins in the next few years if it hopes to return value to its investors reflective of revenue growth. This inability to produce profit from growing revenue streams in reflective in the share price performance for this company over the last five years. The table below shows that PEP has lagged the performance of the Dow Jones Industrial Index.

Performance:

(click to enlarge)

Above is the stock price performance for PEP since 2008 compared to the Dow Jones Industrial Index. PEP has underperformed the broader index over the last 5 years.

Dr Pepper Snapple Group (NYSE:DPS)

Company Commentary: The Dr. Pepper bottling company is a company that has had a rather impressive turnaround over the last five years. It went from losing money five years ago to a very profitable 2012. Dr Pepper owns some very iconic soda and drink brands that you have all seen and know and probably even drink; but you probably do not associate those brands with the Dr Pepper Company. If you would like to see all the brands under the Dr Pepper Snapple Group label please click here.

Key Fundamentals and Highlights:

Dividend YieldDividend Payout RatioQuarterly Dividend PaymentDividend Increase Since 2010
3.1%46%$0.38%153

Not only does DPS have a higher yield than both PEP and KO, but it also pays out less of its profit, and has shown a greater focus on increasing its dividend payments.

20082009201020112012
Revenue5.71B5.53B5.64B5.9B6B
EPS-$1.23$2.17$2.17$2.74$2.96
Shares Outstanding254M255.2M242.6M221.2M212.3M

DPS like many companies over the last five years has seen slow revenue growth but has continue to increase profitability through these difficult times. One of the reasons it has been able to do so is the commitment DPS has made to repurchasing shares with an almost 20% reduction in the number of outstanding shares over the time period. DPS has shown an ability to increase profit in a sideways market. This will be an important value in the coming years ahead as most experts estimate slow to moderate growth in global economies. This value is one that has increased the company's status in my opinion. This opinion is clearly echoed by more investors than me, which is apparent based on the company's share price performance shown below.

Performance:

(click to enlarge)

Above is the stock price performance for DPS since 2008 compared to the Dow Jones Industrial Index. DPS has significantly outpaced the broader index over the last 5 years.

Specialty Companies

SodaStream International Ltd (NASDAQ:SODA)

Company Commentary: SODA is the do it yourself at home soda company. SODA decided to target a specific section of the drink market that was either tired of paying for all its drinks or just couldn't find drinks with the specific flavor for which they were looking. With SODA machines you can make your own custom carbonated and noncarbonated beverages with any flavor combination you like. I smell a contest promotion at some point in the future for the best-tasting at home drink creation.

Key Fundamentals and Highlights:

20082009201020112012
Revenue146.25M146.03M212.59M309.76M436.32M
Net Income775,5129.92M12.87M29.47M43.86M
EPS$0.04$0.56$0.91$1.43$2.09

SODA has done a very impressive job of increasing revenue and profitability over the last five years. Revenue has more than tripled over this time period. Imagine if one of the above companies were to set SODA as a takeover target. The customer market that SODA exposes would be a significant boost for any of the previously talked about companies. SODA is definitely a growing company that should be considered by growth-oriented investors. With a current P/E of 22 this stock is undervalued at these levels. This is very likely the result of the significant short interest that this company continues to face. If however SODA can continue to perform expect this stock to rise nicely as the shorts are forced to close their positions.

Monster Beverage Corp (NASDAQ:MNST)

Company Commentary: Monster has long been known for its energy drinks. This company has made its mark focusing on the sugary caffeinated beverages that all too often it feels like our society runs on. It has expanded its brand in recent history with all natural drinks in its Hansen line of drinks. It has also expanded to the rapidly growing tea market with its Peace Tea brand. Monster has also been the talk of many takeover targets and is very possibly ripe for the picking if the price is right.

Key Fundamentals and Highlights:

20082009201020112012
Revenue1.03B1.14B1.3B1.7B2.06B
Net Income108.03M208.72M212.03M286.22M340.02M
EPS0.561.111.141.531.86

MNST has shown a great ability to increase its revenue doubling it over a five-year period. Not only are its revenues growing but it is also increasing its margins and thereby increasing profitability. While revenue has only doubled net income has more than tripled over this same time period. This shows that MNST is clearly able to identify internally where it can streamline processes and increase profitability. With a current P/E of 25 this company is slightly under priced especially considering its revenue and net income growth rates. Do not chase this stock, once the P/E starts to approach 28 or so I would not recommend adding to your position.

Starbucks Corp (NASDAQ:SBUX)

Company Commentary: Where would society be without Starbucks? We would be run down and sluggish, at least that is what its marketing department would have us to believe. How else would it be able to convince people to pay as much as they do for a cup of coffee? It must be doing something right though because it is always busy morning, noon and night. It is the one-stop shop for people seeking a caffeine pick-me-up hot or cold.

Key Fundamentals and Highlights:

20082009201020112012
Revenue10.38B9.78B10.71B11.7B13.3B
Net Income315.5M390.8M945.6M1.25B1.38B
EPS0.430.521.241.621.79

SBUX like most companies during the recession saw its revenue adversely damaged due to difficult times for consumers. During that period SBUX took the opportunity to streamline its model and widen its margins. This has benefited it greatly as it has seen a return to revenue growth. This company used the downturn to its advantage. That is a quality that I really like in companies; when times get tough it sees where it can optimize its supply chain. This allows it to weather the storm without having to pass along price increases to its customers, which in turn would hurt it even more. Now that things are starting to turn around it is seeing increased profit from those changes. With a current P/E of 30 SBUX is properly priced at its current levels. Look to open positions when and if SBUX share price dips.

Green Mountain Coffee Roasters Inc (NASDAQ:GMCR)

Company Commentary: Green Mountain has brought the gourmet coffee straight to our house. Now no longer do you even need to keep and store coffee or grind beans. Just fill up a Keurig machine with a little water, stick in a K-Cup of your favorite coffee, and presto, you have a lovely cup of coffee. It has made the at home/office coffee making procedure idiot proof. I am not saying that you had to be a genius before to make coffee but we all know someone who just can't make a good cup of coffee to save a life.

Key Fundamentals and Highlights:

20082009201020112012
Revenue500.28M786.14M1.36B2.65B3.86B
Net Income22.3M54.44M79.51M199.5M362.63M
EPS0.190.450.581.312.28

GMCR is a perfect example of innovation at work. It has demonstrated an impressive ability to grow revenue, increasing more than 600% over a five-year time frame. This company is a true growth company if ever I have seen one. However many people bet on this company too fast and too often, driving its share price way above sustainable levels in 2011. The subsequent correction left many people wondering what would become of GMCR and lowered the stock price to very affordable levels. It is continuing to increase revenue and profitability just like it has all along but at a more sustainable rate as of late. With a current P/E of only 20 this company is a bargain at this level.

Performance Of Specialty Companies

(click to enlarge)

Summary

So who is winning the drink wars? Well it is hard to argue with the performance of KO especially considering that its largest PEP competitor seems to be struggling to find its place. DPS is a nice alternative that has offered more growth as of late but I am expecting DPS to settle in to a more muted period of growth in the upcoming years but growth nonetheless. GMCR seems to have great potential for people seeking growth-style investments and is still a bargain at current levels. SBUX, SODA and MNST all offer nice growth rates but fall far short of GMCR's rate of return. Please respond in the comments section below and let me know what other companies you are considering in the beverage industry besides the above mentioned companies.

Source: Who Is Winning The Drink Wars?