MARCH MADNESS: Kraft Foods (KRFT) vs. Coca-Cola (KO)

Advertisement

Cheez Whiz vs. Coca-Cola — you couldn’t ask for a more all-American matchup than this.

MARCH MADNESS: Kraft Foods (KRFT) vs. Coca-Cola (KO)In our hunt for the best stock on Wall Street, we head to the consumer staples sector where we pit two of the country’s most recognizable names.

On one end of the court, we’ve got the king of macaroni-n-cheese, Kraft Foods Group Inc (NASDAQ:KRFT). On the other, we’ve got the world’s No. 1 soft-drink company, The Coca-Cola Co (NYSE:KO).

Both make products you know and love. But which is the best investment?

Kraft Foods (KRFT)

Household names like Philadelphia cream cheese, Maxwell House coffee, Crystal Light teas, Stove Top stuffing, Planters nuts and of course the various lines of namesake Kraft products all combine to make KRFT a widely diversified company with some of the food world’s most trusted brands.

Kraft is a $36 billion company by market cap that sold $18 billion worth of cheese, noodles and Kool-Aid last year, and it’s a fairly substantial yielder, paying out 55 cents quarterly for a current yield of 3.6%.

Of course, Kraft’s business is not one in which competitors frequently reinvent the wheel and easily knock off the top dog. It’s not a rapidly changing industry, though it is a growing one as world populations expand. Translation: KRFT can grow, just likely not at a speedy clip, and its name cache should ensure it endures the test of time.

However, Kraft has a couple problems worth factoring in. For one, there’s Kraft’s debt — KRFT has more than $8.6 billion in long-term debt, and in 2014, the company paid $484 million in interest expense alone.

Also, the company’s hefty dividend of $2.20 annually was actually well more than the $1.74 in GAAP earnings Kraft made last year … though those profits were hit hard by a pension-related charge. The annual dividend was well under adjusted earnings of $3.15 per share.

Still, Kraft is hampered by its debt load and payments, so there’s no reasonable expectation for sizable dividend increases in the near future.

Coca-Cola (KO)

Coca-Cola is a global top-five brand, brought in $46 billion in revenues last year and is a member of the elite Dividend Aristocrats. KO has paid out a dividend every year since 1893, and as of this February’s hike, has increased its payout annually for 53 consecutive years.

Simply put: Coke is one of the safest investments you can make.

However, while Coca-Cola is doing its best not to remain stagnant, it does have a few issues it needs to overcome sooner than later.

Slowing revenue and falling soft drink volumes in the U.S. are two of the more important issues. With more Americans changing their eating habits, Coke and other soft drinks are quickly being cut out of diets across the country. Coke has responded by expanding its business to bottled water, energy drinks, fruit drinks, sports drinks, and has taken a small stake in a coffee company … but at the end of the day, the name on the company sign is what drives the bulk of the company’s revenue.

There very well might be no way to get people to start drinking Coca-Cola again. This all comes down to KO’s ability to replace that lost revenue.

Easier said than done, but Coca-Cola certainly is working toward that end.

Our First-Round Pick: KO

While Kraft itself is a wonderful brand and while it owns many more, Coca-Cola — even in decline — has one of the world’s best brand names. That name recognition alone should give KO the kind of time it needs to continue leveraging its newer brands.

For now, my vote goes to Coca-Cola.

Head back to the Stock Market Madness bracket to vote on your favorite stocks and check out other previews!

As of this writing, Matt Thalman was long KO. You can follow him on Twitter at @mthalman5513.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/march-madness-kraft-foods-group-inc-krft-vs-the-coca-cola-co-ko/.

©2024 InvestorPlace Media, LLC