Jefferies starts Coca-Cola with buy, PepsiCo with hold

Jefferies starts Coca-Cola with buy, PepsiCo with hold

Stock Market Predictions

(Global Markets) - Jefferies initiated coverage on Coca-Cola Co (KO.N) with a "buy" rating, citing the company's dominant global product portfolio and an exposure in the emerging markets.

The brokerage also started coverage on PepsiCo Inc (PEP.N) with a "hold" rating, saying it sees the company being hurt by slower growth in both its domestic and international businesses, modest growth in volume and rising commodity costs.

"We expect (Coca-Cola) to deliver another year of mid-single digit volume growth in 2012 driven by the Latin America, Pacific and Eurasia and Africa segments," analyst Jeff Farmer said in a note to clients and started Coca-Cola with an $80 price target.

Earlier this month, Coca-Cola had said it will invest $2 billion in India over the next five years, to compete with PepsiCo in one of the fastest-growing economies.

However, the analyst said PepsiCo's product portfolio is weighted to slower growing geographies and categories, a disadvantage at a time when investors are increasingly pursuing emerging market exposure.

"About 40 percent of (PepsiCo's) operating income is generated outside of the United States, a big number, but one that puts the company at a disadvantage to its primary global competitor, Coca Cola, at almost 80 percent," Farmer said.

He was also concerned over the possible Frito Lay North America spin-off reported by the New York Post.

"Recent precedents such as Kraft (KFT.N), Sara Lee (SLE.N) and Fortune Brands FO.N suggest that large-cap consumer company spin-offs have not resulted in material value creation," Farmer said.

The analyst set a price target of $70 on PepsiCo stock.

Shares of Coca-Cola closed at $66.62 and those of PepsiCo closed at $64.09 on Thursday on the New York Stock Exchange.

(Reporting by Arpita Mukherjee in Bangalore; Editing by Esha Dey)