Is Pepsico Doomed to be a Second-Best Brand?

With shares of Pepsico, Inc. (NYSE:PEP) trading around $69.63, is PEP an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

H = High Quality Pipeline

According to an Energy Fiend report, Pepsi-cola was the number two soft drink in America in 2007, losing out only to Coca-Cola’s (NYSE:KO) classic soda. But by 2011, Pepsi-cola had slipped to number three, replaced by Diet Coke, while Pepsi’s own diet offering fell from fifth to seventh.

2007 2011
1 Coca-cola Classic (coca-cola) Coca-cola Classic (coca-cola)
2 Pepsi-cola (PepsiCo) Diet Coke (coca-cola)
3 Diet Coke (coca-cola) Pepsi-cola (PepsiCo)
4 Mountain Dew (PepsiCo) Mountain Dew (PepsiCo)
5 Diet Pepsi (PepsiCo) Dr Pepper (Dr. Pepper/Snapple)

In the battle for top beverage, brand is everything. In 2012, Interbrand calculated Pepsi’s brand value to be $16.5 billion, having grown 14 percent from 2011, making Pepsi the 22nd most valuable brand in the world. Interbrand comments:

“Holding strong at #22, Pepsi has really upped its game in the past year. The brand developed its first global positioning, ‘Capture the excitement of now,’ which casts Pepsi as a youthful, fun alternative to Coca-Cola and inspires Pepsi lovers to live each moment to the fullest. Its first global campaign, ‘Live for Now,’ meshes well with ongoing consumer promotions relating to music and its US partnership with the NFL.” There seems to be a common thread here.

Pepsi has also overhauled its web presence, focusing on crowd-sourcing and engagement with the consumer. Working with social trends, Pepsi has also addressed health and environmental concerns, curbing a slow decline in soda consumption in developed economies by focusing on younger consumers and emerging markets.

Reports indicate that Pepsi will be launching a re-branding campaign with a new logo and theme as early as January.

For its part, Coca-Cola has claimed the title of world’s most valuable brand for years, and it’s showing no sign of slowing down. In 2012, Interbrand calculated Coke’s brand value at over $77 billion, an 8 percent annual increase.