Molson Coors vs. PepsiCo: Goldman Prefers Beer

Goldman Sachs has removed PepsiCo Inc. (PEP) from its Americas Investment Buy List and replaced it with Molson Coors Brewing Co. (TAP).

PepsiCo was downgraded to “neutral” despite analyst Judy Hong’s view that it continues to be a high-quality name in the consumer staples segment. She expects it will produce earnings growth of 11% to 12% over the next few years.

Ms. Hong points out that PepsiCo shares have held up relatively well during the market’s recent turbulence, while Molson Coors shares continue to underperform. Investors should take advantage of this weakness ahead of an Sept. 6 investor presentation that will provide Molson Coors shares with a boost, she told clients in a note.

Ms. Hong thinks the brewer could increase its free cash flow to around US$7.50 per share in 2008 and to between US$8 and US$9 in 2009. She also forecasts stable to positive market share gains in both Canada and the U.S., as well as the potential resumption of a share buyback program.

Ms. Hong has a US$105 target price on Molson Coors shares, representing upside of roughly 23%.

TAP vs. PEP 1-yr chart: