That’s according to CLSA analyst Caroline Levy, who today reiterated her Outperform rating on Coke and Underperform rating on Pepsi, following her takeaways from meetings at the Consumer Analyst Group of EuropeÂ Conference.
Levy writes that Coke is deploying capital strategically, and should see longer-term upside from its price-mix. Moreover, with tea such a huge global market, she is encouraged that the company is actively looking to grow its presence. Still she notes that the company’s energy portfolio is lacking, an hole that could only likely be plugged by the purchase of major brand like Monster or Red Bull (likely not for sale).
“We met with Coca-ColaÂs CFO, Gary Fayard, at the CAGE conference in London. We believe CokeÂs next move will be to charge after tea, both in North America and China, after exiting the Nestea JV by year end. Coke will likely use two or three brands in North America, including Gold Peak (mainstream) and Honest Tea (niche) and launch a new initiative, possibly under the Fuze brand. In China, Coke could launch sooner, using a brand specifically developed for the local market. These moves should help it achieve its goal of 5-6% long-term sales growth. Still lacking is an energy portfolio, and we believe Coke needs an acquisition to play effectively in this market. We reiterate our Outperform rating and $78 target price, which represents 17.4x our CY13 estimate of $4.49.”
As for Pepsi, she notes that her bearish thesis was unchanged after meeting with its U.K. bottler Britvic. She writes that the company doesn’t deserve to trade at a premium, given decelerating earnings growth (she estimatesÂ three-year average organic sales and EPS growth of 5.0% and 4.6%, respectively).
“We met with PepsiCo’s UK bottler, Britvic, during the CAGE conference in London. While Britvic is a solid player in the UK and the rest of Europe, we believe the PepsiCo brands will be at a disadvantage, as Coke will have major Olympic activation. Britvic took a significant margin hit in 2011 (unlike CCE) and seems likely to need more pricing this year to cover ongoing high costs, especially in the first half of the year. We reiterate our Underperform rating and $66 target price on PepsiCo, which is based on 14.7x our CY13 estimate of $4.50.”
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