Citi Initiates Coverage on US Soft Drink Makers

November 21, 2008 12:41 PM EST

Citi initiates coverage on Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Pepsi Americas (NYSE: PAS), and Pepsi Bottling Group (NYSE: PBG) with a Buy. Citi initiates coverage on Coca-Cola Enterprises (NYSE: CCE) with a Hold.

Citi analyst says, "Valuations are compelling for the key brand owners and bottlers in the US soft drink industry, with expected total returns ranging from 21% to 70%. While 2009 earnings growth will almost certainly be below trend, we believe this can give extra impetus to much needed changes already underway, and look for this to be reflected in multiple expansion across the sector as investors look ahead to 2010... Best ideas are KO and PBG, even as CCE and PEP provide category catalysts. High profile 4Q08 announcements from CCE (pending) and PepsiCo (October) suggest important changes in the way key industry players approach the US soft drink business. That said, Coke's business mix and relative valuation imply more leverage than PepsiCo to improved CSD fundamentals, while we prefer PBG's track record to execution risk at CCE."

The Coca-Cola Company is a manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

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