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Canaccord Genuity Morning Coffee on Coca-Cola (KO) and PepsiCo (PEP): Similar Product, Different Directions

March 18, 2011 10:37 AM EDT
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Price: $61.09 +0.10%

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    20 Buy, 13 Hold, 2 Sell

Rating Trend: Up Up

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    Up: 13 | Down: 10 | New: 11
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Canaccord Genuity Morning Coffee on Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP): Similar product, different directions.

Canaccord analyst said, "A recent Beverage Digest report indicates that Diet Coke has passed Pepsi as the number- two carbonated beverage in the U.S., now holding 9.9% market share while Pepsi’s share has dropped to 9.5%. Credit Suisse says this is the first time Pepsi has fallen to the number-three spot in their memory, and that they were awaiting this data point as another way to measure brand strength. The brokerage notes that Coke argues for widening price gaps, helped by its package segmentation and mix upgrade of core brands. Credit Suisse is concerned about the morale implications of the results for Pepsi’s beverage people as the company’s namesake brand has dropped at a time that a tangible sign of brand momentum for the core brands would help. The two soft drink companies have had very different approaches to their business of late. Coke has continued to focus on building its brand, while Pepsi has attempted to win share with innovation and nutrition. John Sicher, editor of Beverage Digest, says Pepsi needs to get back to its roots with fun advertising to make up market share that it has lost to Coke. Credit Suisse believes having strong core brands, upgraded marketing and better partnership models will feed nutrition and innovation with lower risk and higher reward to investors. The brokerage remains bullish on Coke, and believes it will continue to outperform Pepsi, adding the stock to their “Trade Idea Monitor”."


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