Coca-Cola and PepsiCo are still buys at BofA despite regulatory overhang
Justin Sullivan

Bank of America weighed in on the reports that the FTC is conducting a preliminary probe of Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) for their pricing practices in the U.S. beverage market.
The firm thinks the recent pricing actions in the soft drink market may have caught the attention of the regulator. Consistent with other food and beverage sectors, the rate of price increases for soft drinks is noted to have been running well above historic averages over the past two years amid inflation pressures. The government could also be looking at the different pricing approaches from the beverage giants for different kinds of retailers.
However, BofA does not think the case may be as simple as circling the higher prices being charged to smaller retailers or mom & pop stores.
Analyst Bryan Spillane: "While the retail prices are making headlines (and potentially drawing scrutiny from regulators) the margins for KO and PEP in the US are compressing as the price increases have not caught up to inflation. This makes it difficult to draw a line from higher prices to some anti-competitive behavior."
The regulatory overhang on Coca-Cola (KO) and PepsiCo (PEP) was not enough to push BofA off its Buy rating for both.
Coca-Cola (KO) rose 0.21% in premarket trading on Wednesday and PepsiCo (PEP) was up 0.15%. Both companies are expected to report Q4 earnings in early February.