No Pepsi, Coke?

| About: The Coca-Cola (KO)

For those that didn't get the joke in my title, it refers to a Saturday Night Live skit where only three items could be ordered: a cheeseburger, chips, and Pepsi. When asking for a coke, the man behind the counter would say "No Coke, Pepsi". We see that continued divide everywhere we go today. While supermarkets and other stores do carry both items, try finding them both at a certain sports venue. The Old Yankee Stadium served Coke products, the new one only serves Pepsi products. Coca-Cola (NYSE:KO) and Pepsico (NYSE:PEP) may be the best two company competition out there, but the question is, which is a better investment? Let's look at these names and the industry.

First, let's take a look at growth. The following table shows the current analyst growth forecast for each company's revenues and earnings in 2012 and 2013. For a few additional comparisons, I've also added Dr. Pepper Snapple (NYSE:DPS) as a drink maker and SodaStream (NASDAQ:SODA), a growth name in this industry.

Of the three traditional names, Coke has the best revenue growth forecast for this year and next. Coke maintains a lead over Pepsi in earnings growth, especially this year, where Pepsi is expected to see a decline in earnings per share. Dr. Pepper has higher forecasted earnings growth this year, but Coke has a higher projection for 2013. Obviously, none of these three names can match the growth of SodaStream, which is a small cap name rapidly growing now. I included SodaStream because it is growing quickly, and will be expanding heavily over the next two years. If you don't think the big boys are worried about SodaStream, you don't know SodaStream.

The growth issue was inherent in each company's second quarter results. When Coca-Cola reported, the company reported revenues up 3% over the prior year period, and both the top and bottom line numbers beat analyst estimates. Excluding foreign exchange effects, revenues were up 7%. When Pepsico reported second quarter results, organic growth was only up 5%, and net revenues were down 2% due to structural changes and forex.

The next thing I will look at is some balance sheet numbers. The table below shows some key financial data for each name, at the end of their most recent quarters. Working capital and debt numbers are in millions, while market cap numbers are in billions.

Other than SodaStream, Coke is the only one with positive working capital and the highest current ratio. Also, the liabilities to assets ratio for Coke is the lowest, and the company has the lowest long term debt to market cap ratio of the three. The importance here is that both Coca-Cola and Pepsi have stock buyback plans. Coke expects to buy back $2.5 to $3.0 billion this year, and Pepsi expects to buy back $3.0 billion. However, with the added flexibility, and Pepsi's restructuring efforts, I think that Coke will have a better chance to buy back more shares (in terms of dollars going forward). The one important thing is that dollar for dollar, Pepsi's buyback will go further since it has a smaller market cap. Dr. Pepper bought back about $150 million in shares during the first half of this year.

The third table I will provide is on valuation. Investors always want to know what they are paying for, so the table below shows the P/E values for each, based on currently expected earnings for that year. I've also provided the current dividend yield for those that pay them.

Coca-Cola has the lowest dividend yield but the highest valuation. Investors seem to be willing to pay a premium, because if you remember from above, Coke has the best growth and balance sheet of the big three. Dr. Pepper has the lowest valuation of the three, and ties SodaStream for low valuation based on 2013 estimates. Remember, SodaStream has the most growth potential.

The final table I want to provide is what analysts currently think about each name. The table provides a rating (1 equals strong buy, 5 = sell), the average price target, and the potential upside from Tuesday's close to that average price target.

Of the big three, Coke provides the most upside and is the analyst favorite. SodaStream, being a high growth company, is expected to do very well going forward and has corresponding upside.

In the end, is it no Coke, Pepsi, or no Pepsi, Coke? Well, it depends on what you are looking for. Of the three larger drink names, Coke provides the most potential revenue, earnings, and stock growth, as well as the best balance sheet. Pepsi and Dr. Pepper provide lower valuations and higher dividend yields. Dr. Pepper has the highest yield and lowest valuation. All three are stabile names, and based on the information above, I would choose Coca-Cola if I could only buy one. Of course, if you are looking for a speculative or high-growth play in this space, you might want to check out SodaStream. SodaStream is riskier but could provide much higher returns in the long run. In the end, people have to drink, so all these names should do fairly decent.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.