KO vs. PEP vs. DPS: Who Wins the Earnings Taste Test?

Out of the big three soda makers—Coca-Cola (KO), PepsiCo (PEP) and Dr Pepper Snapple Group (DPS)—two have already reported earnings, and the third is scheduled to report a week from today. While we all know our preferred brand of soda, the question of which stock is the best requires more than a simple taste test. So today, let’s figure out which beverage stock is the best addition to our portfolios.

Let’s start with the first company to report earnings this week, PepsiCo. The Purchase, NY-based beverage manufacturer delivered $0.89 per share in earnings this past Monday, topping its $0.81 estimate. So, PepsiCo beat earnings by a substantial 9.9%, which gave the company’s stock a quick bump. And that’s why my Portfolio Grader tool continues to rate this stock a B-rated Buy.

On the other hand, just this morning, Coca-Cola’s first-quarter earnings were better than expected as well. This soda giant reported earnings of better than $0.45 per share, narrowly beating Wall Street’s $0.44 estimate. At the same time, Coca-Cola’s revenues of $10.28 billion missed the $10.29 billion consensus estimate. Between the strong dollar, and softer sales in Europe, Coca-Cola’s top line fell flat. KO shares fell on the news, so while KO may currently earn an A-rating in Portfolio Grader, it very well could be downgraded when I update my system over the weekend.

DPS has yet to report earnings this quarter. But there’s a strong consensus this beverage manufacturer should beat its earnings estimates yet again. And that’s just one of the many reasons my Portfolio Grader tool rates DPS a Buy with an overall B-rating.

So which of these soda giants wins our taste test?

Well, you might think, based solely on overall ratings, that Coca-Cola would be my favorite of the bunch. But with each one of these three companies giving strong performances over the past quarter, I simply have to take a closer look at each company’s fundamentals. So let’s dive deeper into my Portfolio Grader ratings right now.

If you look closely, you’ll see that even though KO has a higher overall rating, its strength is in its quantitative numbers, with a solid A-rating there. However, when it comes to fundamentals, KO barely squeaks by with a C-rating. PepsiCo is in a similar situation. While its Quantitative Grade is a solid A-rating, its C-rated fundamentals drop it down to an overall B-rating.

However, even though Dr Pepper Snapple Group has an overall B-rating, it has a B-rated Fundamental Grade, making it the financially soundest of the soda giants.

And, if you plug all three companies in my Dividend Grader tool, the difference is clear. Although, all of them pay a solid dividend, KO earns a C-rating, PEP maintains a B-rating, and DPS pulls off the only A-rating of the bunch.

If we couple this with the outperformance we’ve been seeing recently from A-rated dividend stocks overall, you can finally see why Dr Pepper Snapple Group wins this taste test hands down for me.

Until next time,

Louis Navellier

Louis Navellier

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