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You Are an Investment Analyst Essay Sample

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Abstract
Through this paper Pepsi and Coca Cola will be fully evaluated. A stock market analysis will be presented to a client as part of a professional consultation process. A background of both Pepsi and Coca will be accompanied in order to have a full synopsis of each company. The stock trends will be examined for both investment options. The stock trends will be based from the intial public offering day to January 2, 2012. Current events surrounding both companies will be displayed in order to assist the analysis. Lastly, we will analyze the financial statements of both companies. After a complete review of both companies a recommendation will be made as the better investment opportunity for the client.

Coca Cola
Founded in 1886, John Pemberton invented the first prototype of soda. Over a century later, The Coca-Cola Company has produced more than 10 billion gallons of syrup. The company is the world’s leading manufacturer, marketer, and distributor of nonalcoholic beverages concentrates and syrups. The company’s corporate headquarters are in Atlanta, Georgia. Led by Coca-Cola the company’s portfolio features 15 billion dollar brands which include; Diet Coke, Fanta, Sprite, Coke Zero, Vitamin Water, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, they rank number one in sparkling beverages. The company has consumers in more than 200 countries who consume their beverages at a rate of 1.8 billion servings a day. The company is focused on supporting active and healthy living so has diversified their products to include healthier choices. They launched more than 100 low and no-colaroie products in 2011 and offer more than 800 low and no-calorie products. The company was one of the four founding companies to establish the Global Business Initiative on Human rights as a means of scaling up respect for human rights across business systems and supply chains.

Coca Cola Company is driven by their Chairman of the Board and Chief executive Officer, Muhtar Kent. Muhtar Kent joined The Coca-Cola Company in Atlanta in 1978. He has held a variety of marketing and operation leadership’s positions including; General Manager, President of the Company’s east Central Europe Division, Senior Vice President of Coca-Cola International, Managing Director of Coca-Cola Amatil-Europe, etc.

PepsiCo
PepsiCo, Inc. was founded by Donald M. Kendall in 1965 through the merger of Pepsi-Cola and Frito-Lay. It is an American multinational food and beverage corporation headquartered in New York. PepsiCo products can be found in nearly 200 countries around the globe. The company is a global food and beverage leader with a diverse product portfolio that includes 22 brands. The five product lines include; Pepsi-Cola, Frito-lay, Tropicana, Quaker, and Gatorade. With each product line there are several variances in the products that are offered. For example, with Quaker brands there are cereals, oatmeal, cereal bars, etc. available for consumption. PepsiCo is the second largest food and beverage business in the world. PepsiCo’s president is Zein Abdalla. He assumed his role in September 2012 and oversees allof PepsiCo’s global category groups, Global Operations, Global Marketing Services, and Corporate Strategy. He has been with the company since 1995. Saad Abdul-Latif is the CEO of Asia, Middle East, and Africa. Albert P. Cary is the CE O of Americas beverages, Brian Cornell is the CEO of PepsiCo Americas Foods. Enderson Guimaraes is the CEO of PepsiCo Europe. Lastly, Indra K. Nooyi is chairman and CEO of PepsiCo.

Stock Price and Trend
COCA COLA COMPANY VS PEPSI STOCK PRICES
Stock PriceInitial1/1/20101/1/20111/1/2012
Coca -Cola Co.4028.532.8934.99
Pepsi Co2361.3165.1266.35

For the last 20 year period between 1992 and 2012, Coca Cola’s share price has climbed from 10.13 to 38.62 which is about 7.3% annualized gain in share price. Pepsi gained 7.2% annually during the same time period. Based off historical trends Coca Cola and Pepsi are two stocks that are very close to one another in terms of historic performance. Over the past two decades a 10K investment in Coca Cola would be worth almost 2K more than an investment in Pepsi. Pepsi is projected to grow its EPS at a rate of 7% over the next three years and Coke is expecting to grow at 9% over the same period.

News Events
In December 2012 Mexican bottler Coca-Cola Femsa SAB finalized a deal to enter Asia, agreeing to buy 51% of Coca-Cola Companies production and distribution operations in the Philippines for $688.5 million. According to the Wall Street Journal “The acquisition of Coca-Cola Bottlers Philippines Inc. marks Coca-Cola Femsa’s first move beyond Latin America, where it is the largest Coca-Cola bottler and a frequent investment partner with Atlanta-based Coca-Cola Co. in a variety of projects.” (Guthrie & Harrup, 2012). The distribution and warehouses of Coca Cola are growing immensely globally. Due to the ongoing economic slowdown of certain countries Coca Cola may have a short term effect on their business. Coca Cola Companies third-quarter earnings rose 3/9%. Though future quarters again, may prove to slow down. Chairman and Chief executive Muhtar Kent said on Tuesday that China’s economy is in the midst of a natural transition where the government is more focused on controlling inflation than stoking growth (Ziobro, 2012). In its home market, Coca Cola sales volume rose 2% even with the price increases put in place earlier this year on sodas. With Coca Cola and these two events their stock is projected to stay even until a dramatic drop is see globally.

In May 2012, Activist shareholder Relational Investors LLC acquired about $600 million stake in PepsiCO Inc. Relational Investors LLC has not called for any immediate changes but has mentioned PepsiCo’s slow-growing beverages business would be better off in a separate, independent structure from the rest of the company (Chon, 2012). The Wallstreet Journal states that the Chairman and Chief Executive Ms. Nooyi faced investor dissatisfaction since least after the company lost market share in the US soda sales rival to Coca-Cola Co. This situation is causing frustration for many investors. In 2012, PepsiCo Inc. made a decision to get rid of 8,700 jobs and boosting its marketing budget as much as $600 million as it tries to compete with the U.S. beverage business which they continue to lose grounds to Coca Cola (Esterl & Ziobro, 2012). Investors may need to be weary that PepsiCo may be not focusing enough on its biggest brands. In recent years the company attempts to make more than double its revenue from nutritional drinks and snacks. Coca-Cola Financial

The following table focuses on the quarterly periods of market prices per share for Cocoa Cola’s common stock, as reported on the New York Stock Exchange. As of February 20, 2012, there were 250,275 shareowners accounts of record. Dividends have increased over the last year.

Common Stock Market PricesCommon Stock Market Prices
2011HighLowDividends Declared2010HighLowDividends Declared 4th Qtr70.2963.340.474th Qtr65.8858.550.44
3rd Qtr71.7763.590.473rd Qtr59.2450.020.44
2rd Qtr68.7764.430.472rd Qtr55.5649.470.44
1st Qtr67.4861.290.471st Qtr57.4352.230.44
The Company’s net sales in the last three fiscal years by product category were as follows: Fiscal Year In thousands 2011 2010 2009 Bottle/can sales:

Sparkling beverages (including energy products) $ 1,052,164 $ 1,031,423 $ 1,006,356 Still beverages 219,628 213,570 202,079

Total bottle/can sales 1,271,792 1,244,993 1,208,435

Other sales:
Sales to other Coca-Cola bottlers 150,274 140,807 131,153 Post-mix and other 139,173 128,799 103,398

Total other sales 289,447 269,606 234,551
Total net sales $ 1,561,239 $ 1,514,599 $ 1,442,986

The Company’s net sales grew 8.2% from 2009 to 2011. The net sales increase was due to an increase in bottle/can volume and a $22.2 million increase in sales of the brand portfolio. The gross margin dollr increased 1.5% from 2009 to 2011 but the gross margin as a percent of net sales decreased from 43% in 2009 to 40.3% in 2011. Overall past 5 years for Coca Cola show a stable revenue and Net income growth. If comparing 3Q accumulative last 12 month results with 2011Y revenue has increased 2.2%. Net income has increased 2.7%. This growth is good if taking into account the overall world economy growth slowdown. The company’s main income is from its original North America.

Balance Sheet
Period EndingDec 31, 2011Dec 31, 2010Dec 31, 2009

Assets
Current Assets
Cash And Cash Equivalents12,803,000 8,517,000 7,021,000
Short Term Investments1,232,000 2,820,000 2,192,000
Net Receivables4,920,000 4,430,000 3,758,000
Inventory3,092,000 2,650,000 2,354,000
Other Current Assets3,450,000 3,162,000 2,226,000

Total Current Assets 25,497,000 21,579,000 17,551,000 Long Term Investments8,374,000 7,585,000 6,755,000
Property Plant and Equipment14,939,000 14,727,000 9,561,000 Goodwill12,219,000 11,665,000 4,224,000
Intangible Assets15,450,000 15,244,000 8,604,000
Accumulated Amortization- – –
Other Assets3,495,000 2,121,000 1,976,000
Deferred Long Term Asset Charges- – –

Total Assets 79,974,000 72,921,000 48,671,000

Liabilities
Current Liabilities
Accounts Payable9,371,000 9,132,000 6,921,000
Short/Current Long Term Debt14,912,000 9,376,000 6,800,000
Other Current Liabilities- – –

Total Current Liabilities 24,283,000 18,508,000 13,721,000 Long Term Debt13,656,000 14,041,000 5,059,000
Other Liabilities5,420,000 4,794,000 2,965,000
Deferred Long Term Liability Charges4,694,000 4,261,000 1,580,000 Minority Interest286,000 314,000 547,000
Negative Goodwill- – –

Total Liabilities 48,339,000 41,918,000 23,872,000

Stockholders’ Equity
Misc Stocks Options Warrants- – –
Redeemable Preferred Stock- – –
Preferred Stock- – –
Common Stock880,000 880,000 880,000
Retained Earnings53,550,000 49,278,000 41,537,000
Treasury Stock(31,304,000)(27,762,000)(25,398,000)
Capital Surplus11,212,000 10,057,000 8,537,000
Other Stockholder Equity(2,703,000)(1,450,000)(757,000)

Total Stockholder Equity 31,635,000 31,003,000 24,799,000

Net Tangible Assets 3,966,000 4,094,000 11,971,000

Currency in USD.
The company’s balance sheet has issues with equity level which dropped from 51% in 2008 and 2009 to around 38% now. The percentage of net income being spent on dividends is increasing each year. Coca Cola’s revenues have grown at about the same rate as its peers for the past three years. The stock price implies media long term growth for its PE ratio is around the peer median of 19.9. The historical performance and long-term growth expectations for the company are looking to be in synced with one another. PepsiCo Financial

Pepsi has a strong balance sheet and the company is posting consistent profits. Pepsi shares offer a dividend that is significantly higher than average and it yields about 3%. The dividend history has a steady increase and has room to grow in the future. Pepsi has raised the dividend annually for more than a decade. Pepsi earns most of their revenue from their American beverages. Though the second area of opportunity Europe. PepsiCo Inc., Income Statement, Revenues

USD $ in millions
12 months endedDec 31, 2011Dec 25, 2010Dec 26, 2009Dec 27, 2008Dec 29, 2007
Frito-Lay North America13,322 13,397 13,224 12,507 11,586
Quaker Foods North America2,656 1,832 1,884 1,902 1,860
Latin America Foods7,156 6,315 5,703 5,895 4,872
PepsiCo Americas Beverages22,418 20,401 10,116 10,937 11,090
Europe13,560 9,254 6,727 6,891 5,896
Asia, Middle East & Africa7,392 6,639 5,578 5,119 4,170
Net revenue66,504 57,838 43,232 43,251 39,474
PepsiCo Inc.’s net revenue increased from 2009-2010 and from 2010-2011. Balance Sheet
Period Ending30-Dec-201124-Dec-201025-Dec-2009

Assets
Current Assets
Cash And Cash Equivalents4,067,000 5,943,000 3,943,000
Short Term Investments358,000 426,000 192,000
Net Receivables6,912,000 6,323,000 4,624,000
Inventory3,827,000 3,372,000 2,618,000
Other Current Assets2,277,000 1,505,000 1,194,000

Total Current Assets 17,441,000 17,569,000 12,571,000 Long Term Investments1,477,000 1,368,000 4,484,000
Property Plant and Equipment19,698,000 19,058,000 12,671,000 Goodwill16,800,000 14,661,000 6,534,000
Intangible Assets16,445,000 13,808,000 2,623,000
Accumulated Amortization- – –
Other Assets1,021,000 1,689,000 965,000
Deferred Long Term Asset Charges- – –

Total Assets 72,882,000 68,153,000 39,848,000

Liabilities
Current Liabilities
Accounts Payable11,949,000 10,994,000 8,292,000
Short/Current Long Term Debt6,205,000 4,898,000 464,000
Other Current Liabilities- – –

Total Current Liabilities 18,154,000 15,892,000 8,756,000 Long Term Debt20,568,000 19,999,000 7,400,000
Other Liabilities8,266,000 6,729,000 5,591,000
Deferred Long Term Liability Charges4,995,000 4,057,000 659,000 Minority Interest311,000 312,000 638,000
Negative Goodwill- – –

Total Liabilities 52,294,000 46,989,000 23,044,000

Stockholders’ Equity
Misc Stocks Options Warrants(116,000)(109,000)(104,000)
Redeemable Preferred Stock- – –
Preferred Stock- – –
Common Stock31,000 31,000 30,000
Retained Earnings40,316,000 37,090,000 33,805,000
Treasury Stock(17,875,000)(16,745,000)(13,383,000)
Capital Surplus4,461,000 4,527,000 250,000
Other Stockholder Equity(6,229,000)(3,630,000)(3,794,000)

Total Stockholder Equity 20,704,000 21,273,000 16,908,000

Net Tangible Assets (12,541,000) (7,196,000) 7,751,000

Currency in USD.

Comparison
Considering Financial Strength, in fiscal year 2011 Coke had $14 billion in cash and cash equivalents and $13.6 billion in long term debt. This gave the company $1.03 in cash for every $1 in long-term debt. Coca Cola also had a working capital that was high for the same period. In fiscal year 2011 PepsiCo had a negative working capital of $713 million which could mean the company had insufficient funds to meet its short term liabilities and/or the working capital per share was negative $.046. Through the last annual report of Coca Cola they had a quick ratio of .92 which shows the company does not have enough cash to cover current liabilities since it owns $.92 in assets the company can turn in to cash almost immediately for every dollar it owes in current liabilities.

Pepsi has a quick ratio of .75 which is more desirable. This is not takin into notice that inventory may take months to sale and turn into cash so was excluded from the ratio. Pepsi’s inventory turnover is more efficient as it clears their inventory about every 21 days while it takes Coke 24 days. Pepsi’s debt to equity ratio is about 37% higher than Coke (1.37 vs .99) which means investors are taking a higher risk when investing in Pepsi. Coke’s debt to equity ratio is less risky. The data collected was taken from both company’s websites as well as the Securities and Exchange Commission website. Both in which the accuracy will hold more integrity as these are two large companies that are consistently under the surveillance of the public and shareholders.

PEPSICOKE
Market Cap:108.70B168.82B
Employees:297,000146,200
Qtrly Rev Growth (yoy):-0.050.01
Revenue (ttm): 65.70B47.60B
Gross Margin (ttm):0.520.60
EBITDA (ttm):12.59B13.01B
Operating Margin (ttm): 0.150.23
Net Income (ttm):5.92B8.80B
EPS (ttm):3.761.91
P/E (ttm):18.7119.68
PEG (5 yr expected):4.072.30
P/S (ttm):1.653.55

Recommendation
After further review and findings I recommend that Coca Cola would be the better investment opportunity. Coca Cola spends more in their research and development investments, is growing globally, focuses a lot on water and health products which is becoming more of a trend, and continues to show profitability. They also manage their baseline products efficiently. Based on current events Pepsi’s investors are wanting Pepsi to divide their products so they could also manage their baseline beverage products more efficiently. Currently Coke is ranked number one in regards to the non-alcoholic beverage industry. In order to provide this information efficiently to an investor I would create a portfolio of side by side comparisons of each company with additional financial statements in the index to reference information. I would further my investigation of the expanding markets, research and development, and product sales for current quarters. The information will be provided as well as a presentation of the information to ensure that investor understands the information.

References

Chon, G. (2012, May 15). Activist Moves Into PespiCo. Retrieved from The Wallstreet Journal: http://online.wsj.com/article/SB10001424052702304192704577406382525667736.html Coca-Cola. (2012). Our Company. Retrieved from Coca-Cola Company: http://www.coca-colacompany.com/our-company/ Esterl, M., & Ziobro, P. (2012). PepsiCo Overhauls Strategy. Retrieved from The Wallstreet Journal:

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