Will Dr. Pepper Impress More Than Coke This Earnings Season?

With The Coca-Cola Co KO and Dr Pepper Snapple Group Inc DPS both set to release earnings this week, Jefferies analyst Kevin Grundy issued a report on Monday previewing what investors can expect from the two beverage giants and their stocks. Overall, Grundy is expecting in-line results for Coke, but is calling for yet another beat from Dr Pepper.

Too early to own Coke
While the U.S. economy is booming, Coke’s large amount of exposure to economic weakness in Europe, Japan, Brazil, China and Russia will likely continue to weigh on the company’s bottom line. Jefferies is calling for quarterly revenue of $12.1 billion, only 0.3 percent above consensus estimates.

Coke’s pricing discipline and focus on reinvestment and productivity savings have made 2015 a “transition year” for the company. Grundy believes that it’s still too early to buy Hold-rated Coke just yet.

Another beat for Dr Pepper
Dr Pepper has beaten consensus earnings estimates by an average of 10.5 percent over the last nine quarters, and Grundy sees more of the same on the way this week. Grundy notes Dr Pepper’s tendency toward conservative guidance and the favorable economic environment as two factors driving a likely beat this quarter.

Jefferies is now calling for earnings per share of $1.12 from Dr Pepper, ahead of consensus estimates of $1.10.

Top pick
Despite the predictions of an earnings beat, Grundy urges patience for investors looking to buy into the stock. “There’s much to like about the DPS story, though with the shares trading at 18.7x CY16e…we’d wait for a better entry point,” he explains.
 

Although Jefferies currently has Hold ratings on both Coke and Dr Pepper, Grundy does mention one beverage stock that traders should be comfortable buying now: Pepsico Inc PEP.