Coke Verse Pepsi

To: Carolyn Keene
From:
Subject: EVA Projections of Coca-Cola and PepsiCo for 2001 to 2003

Objective:
1) Which company would be positioned as a more attractive investment over the next few years?

Recommendations:
Coca-Cola should be chosen for its forward EVA growth prospects, demonstrating strong value creation for shareholders and it should translate into superior share price growth. On the other hand PepsiCo’s projections show a similar level of growth creation through to the 2003 fiscal year. Both rivals represent a solid investment opportunity.

Quantitative Analysis:

EVA
My recommendations are based on analysis of the Coca-Cola Company and PepsiCo using EVA or Economic Value Added. This performance measure illustrates the profits generated by the company after the costs of capital, both debt and equity, is deducted from operating profit. EVA is a strong indicator of stock price and is connected to the future returns on the investment.

Calculations of projected EVA for the financial years 2001- 2003 have been performed and the results are summarized in the graph below. Detailed calculations are contained in the Appendix.



As we can see Coca-Cola’s EVA has declined steadily from $1.602 Billion in 1994 to a low of $1.016 Billion in 2000. PepsiCo’s EVA has been demonstrating the opposite trend from 1994 to 2000, going from $(464) Million to $1.201 Billion in 2000. The year 2000 is significant as it is the first year that PepsiCo has exceeded Coca-Cola in value creation.

However our projections going forward for both companies look good. In part due to the new CEO and strategy focus at Coca-Cola EVA is projected to increase from $1.016 Billion in 2000 to $2.837 Billion in 2001 and continuing the trend to 2003 where EVA should be approximately $3.537 Billion.

PepsiCo continuing on its strategy of pursuing the non-carbonated drink segment will show solid EVA growth as well. It should increase from $1.201 Billion in 2000 to... [continues]

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