Throughout February we had fourth quarter and full year earnings releases from the three major players in the non-alcoholic beverage industry. As the new data points rolled in I figured it was time to update the valuations on the Coca-Cola Company (KO), Dr. Pepper Snapple Group, Inc. (DPS) and PepsiCo. Inc. (PEP). Each company struggled during 2013 with declining sales volumes in the United States, but were also able to give owners a dividend increase. I want to take a look at a few metrics to see which company might have the best relative valuation out of the three.
As part of my quantitative analysis for any company that I want to invest in, I calculate a target entry price. The target entry price is based off several valuation methods including discounted earnings, Graham Number, high dividend yield, low P/E ratio, low P/S ratio, Gordon Growth model and the dividend discount model. The idea is to try and come up with a target entry price as well as fair value and overvalue price points. My partner and I are currently developing analysis tools and we hope to get the first set of tools out over the next month.
Click here to read the rest of the article.