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How Do Analysts Rate Nonalcoholic Beverage Companies?

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Mar. 17 2016, Updated 9:04 a.m. ET

Stock price movement

On a year-to-date basis, the stock prices of Coca-Cola (KO) and PepsiCo (PEP) have risen by 6.6% and 2.6%, respectively. The stock prices of Dr Pepper Snapple (DPS) and Monster Beverage (MNST) have fallen by 1.3% and 7.3%, respectively, since the start of 2016.

Dr Pepper Snapple exceeded analysts’ expectations in 4Q15 but issued a weak outlook for fiscal 2016. Monster Beverage missed 4Q15 sales and earnings expectations. Advance purchases and currency headwinds were among the reasons cited for Monster’s lower-than-expected performance.

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Analysts’ recommendations

As of March 11, 2016, of the 29 analysts covering Coca-Cola, 14 have “buy” recommendations and 13 have “hold” recommendations on the stock. Two analysts have “sell” recommendations on the stock. The 12-month price target for Coca-Cola is $46.57, reflecting 3% upside potential.

Coca-Cola is focused on enhancing its margins through its productivity program. It’s also refranchising its bottling operations to focus more on its concentrate business, and it’s focusing on the expansion of its still beverage portfolio.

Of the 29 analysts covering PepsiCo, 16 analysts have “buy” recommendations, and 13 analysts have “hold” recommendations on the stock. No analysts have “sell” recommendations. The 12-month price target for PepsiCo is $106.15, reflecting a 4.8% estimated rise from its current stock price.

Unlike other nonalcoholic beverage companies such as Coca-Cola, Dr Pepper Snapple, and Monster Beverage, PepsiCo has a diversified business model comprising snack foods and beverages. PepsiCo’s market-leading Frito Lay snack food business is helping to offset some of the weakness in its soda volumes. PepsiCo constitutes 0.7% of the iShares Russell 3000 ETF (IWV).

Dr Pepper Snapple is a smaller player compared to Coca-Cola and PepsiCo, but it delivered higher sales growth in all quarters of 2015. As of March 11, 16 out of 23 analysts had “hold” ratings on the company. Five analysts issued “buy” recommendations, and two analysts had “sell” ratings on the stock. Analysts have a 12-month price target of $93.68 for the company. This estimate reflects a 2.9% return potential compared to the current stock price.

Monster Beverage has a consensus “buy” rating, with 15 out of 20 analysts having “buy” recommendations. Five analysts have “hold” recommendations, and none have “sell” recommendations on the stock. Analysts currently expect Monster Beverage’s stock price to rise by 15.7% from its current level to a 12-month price target of $154.94. Strong demand for energy drinks is a key growth factor for the company.

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