The Coca Cola Co

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Pepsi Bottling Group (NYSE: PBG) issued its Q2 earnings numbers today, and the market apparently wasn't impressed. As of 2:45, the shares are off well over 4%.

The numbers weren't bad in some respects, but a couple areas weren't encouraging. Sales increased about 5%, and earnings per diluted share expanded by 12% to $0.78. That was more than enough to beat the analysts, who were looking for about $0.75 per share, according to Briefing.com. However, worldwide case volume declined 3%. Case volume is one of the most important metrics for a beverage company, so this is very disheartening. Also, cash from operations dropped to $89 million for the six-month period from a year-ago level of $158 million. There was no free cash flow, but management does expect positive free cash flow for the fiscal year.

Considering the bottler's forward guidance and dividend yield, the shares are somewhat cheap. But they are basically at a 52-week low in a bad market, so I wouldn't bother with them. When it comes to investing in the beverage sector, I prefer owning a PepsiCo (NYSE: PEP) or a Coca-Cola (NYSE: KO). In fact, I own the latter. Avoiding bottlers like Pepsi Bottling Group and Coca-Cola Enterprises (NYSE: CCE) makes sense for the long-term since the bottlers will always have greater exposure to capital-expenditure requirements.

Disclosure: I own Coke; positions can change at any time.

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MOST NOTEWORTHY:

• Merriman initiated Glu Mobile (NASDAQ: GLUU) with a Buy rating and thinks the valuation already reflects the potential effects of a slowdown in consumer spending. The firm believes shares have the potential to trade to a range of $8-$10.
  
• Merriman also started USA Technologies (NASDAQ: USAT) with a Buy rating. The firm believes the company is uniquely positioned in the wireless machine-to-machine market given its initial traction with Coca-Cola Enterprises (NYSE: CCE) and Mastercard (NYSE: MA) in deploying a cashless payment solution for the beverage vending industry.
  
• B. Riley believes Fulton Financial (NASDAQ: FULT) can return to its legacy of achieving consistent earnings growth with the resolution of the Resource Mortgage tribulations. The firm initiated shares with a Buy rating and $14 target.

• JP Morgan assumed Taser (NASDAQ: TASR) with an Overweight rating.
  
• Calyon initiated Rowan Cos (NYSE: RDC) with an Add rating and $42 target.
  
• Credit Suisse started VisionChina Media (NASDAQ: VISN) with an Outperform rating and $14 target.

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Savient Pharmaceuticals, Inc. (NASDAQ: SVNT): After last week's success with their gout drug, these shares haven't stopped rising. They reached a new high of $21.36 against 52-week low of $10.58.

Trane Inc. (NYSE: TT): A nice big buy-out from Ingersoll-Rand Company Limited (NYSE: IR) sent shares up to $45.27 from 52-week low of $32.09.

Varian Medical Systems, Inc. (NYSE: VAR): The FDA approved new proton scanning product. The stock Traded up to $52.05 from 52-week low of $37.30.

Coca-Cola Enterprises Inc. (NYSE: CCE): Still moving up after last week's strong forecast. Hit $26.93, up from 52-week low of $18.78.

Douglas A. McIntyre is an editor at 247wallst.com.

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Here are a few highlights of this past week's earnings coverage from BloggingStocks:

• Analogic Corp. (NASDAQ: ALOG) easily beat expectations, sending shares higher.
• Ciena Corp. (NASDAQ: CIEN) posted a loss and forecast sales for 2008 below estimates.
• Coca-Cola Enterprises Inc.'s (NYSE: CCE) earnings outlook led shares to a 52-week high.
• Cooper Cos. (NYSE: COO) swung to a loss on acquistion costs and litigation.
• Copart Inc. (NASDAQ: CPRT) beat expectations, sending shares to a new high.
• Costco Wholesale Corp. (NASDAQ: COST) posted a solid quarter, in line with expectations.
• Cost Plus Inc. (NASDAQ: CPWM) posted a smaller-than-expected net loss.
• Fleetwood Enterprises Inc. (NYSE: FLE) narrowed its loss through improved efficiency.
• General Electric Co. (NYSE: GE) reaffirmed its 4Q forecast, but the forward outlook disappointed investors.
• H&R Block Inc. (NYSE: HRB) warned of a deep loss due to the mortgage meltdown.
• Korn/Ferry International (NYSE: KFY) beat estimates and revised its guidance.
• Leap Wireless International Inc. (NASDAQ: LEAP) posted a loss, but share prices rose anyway.
• Lehman Brothers Holdings Inc. (NYSE: LEH) earnings fell for the third quarter in a row.
• Methode Electronics Inc. (NYSE: MEI) beat estimates, spurred by international sales.
• Novell Inc. (NASDAQ: NOVL) swung to a loss, surprising Wall Street.
• Synopsys Inc. (NASDAQ: SNPS) beat expectations and offered guidance.
• Texas Instruments Inc. (NYSE: TXN) raised its guidance for the fourth quarter.

Brian White wonders whether Apple Inc. (NASDAQ: AAPL) has stopped underestimating its guidance. Peter Cohan offers Citigroup Inc.'s (NYSE: C) new CEO three steps for a brighter earnings outlook. Both Douglas McIntyre and Lita Epstein take a look, ahead of its quarterly report next week, at how Goldman Sachs (NYSE: GS) handled the mortgage crisis

Other upcoming results to watch for include: Best Buy (NYSE: BBY), Nike (NYSE: NKE), Oracle (NASDAQ: ORCL), Morgan Stanley (NYSE: MS), ConAgra (NYSE: CAG), and FedEx (NYSE: FDX).

Visit AOL Money & Finance for more earnings coverage.

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"Stock prices continue to behave bearishly," caution David Nassar and Larry McMillan, options experts and editors of the industry-leading The MarketWatch Options Trader.

Here, they offer a bearish market overview along with a bullish look at beverage stocks -- along with an options play on PepsiCo (NYSE: PEP).

The advisors explain, "Rallies can't gain footholds, while declines are deeper and more long-lasting than seem possible. As a result, there is an oversold condition in this market -- one which can spur sharp, but short-lived rallies at any time -- but a true intermediate-term buy signal is not at hand, for none of our indicators have turned bullish.

"The Standard & Poor's 500 turned bearish when the index fell through what had been support at 1490. That was the last piece of the bearish puzzle. The market has been under extreme pressure ever since. Any rallies towards 1490 can be sold, as that level now represents resistance.

"Meanwhile, where is support? It was at 1430-1440, but that level gave way and it seems likely now that the averages will test 1410 (the August closing lows) and perhaps 1370 -- which is multiple support from both August and March.

"Should that give way, then a true bear market would be underway. Support levels are somewhat meaningless in a nasty decline like this anyway; it is more important to monitor oversold conditions.

"The equity-only put-call ratios remain strongly on sell signals as they continue to climb on their charts. They are not 'oversold' yet, in our opinion. However, some of the minor index ratios are beginning to get oversold, as evidenced by the S&P 500 futures weighted put-call ratio which is very high on its chart and may be rolling over to a buy signal.

"Market breadth has been abysmal. Advances have only outnumbered declines one day in the last eleven trading days! Breadth has reached extremely oversold levels, not seen since the August bottom.

"However, the market needs to see, at least, back-to-back days of advances leading declines before one could say that breadth was turning truly positive. That hasn't happened in some time.

"So, none of our major indicators are bullish. In reality, only breadth is deeply oversold. The others have room to run before they reach oversold levels. However, that doesn't mean that this market can't occasionally be traded from the long side, when it gets very oversold.

"Just remember that 'oversold' does not mean 'buy.' Short-lived rallies arise out of oversold conditions, but true intermediate-term buy signals only arise when our technical indicators give multiple, confirmed buy signals.

"It might seem strange to recommend a long position in the midst of a horrendous market decline, but Coca Cola (NYSE: KO) and PepsiCo (NYSE: PEP) have been moving up. Both made all-time highs recently. We favor PEP slightly, just because it's been a little stronger. Stock volume patterns are positive, and there is support at 74.

"Specifically, for options traders, we are recommending purchase of the January 72.5 PepsiCo calls at a price of $4.10 or less. We also suggest to stop yourself out on any close below 73 ½.."

Each day, Steven Halpern's TheStockAdvisors.com website features the latest investment commentary and favorite stock picks of the nation's leading financial newsletter advisors.

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MOST NOTEWORTHY:

• BMO Capital believes the broadline retail sector will be pressured until valuations reflect a potential recession in 2008, or the housing market begins to stabilize. The firm initiated the sector with an Underperform rating, and started shares of Wal-Mart (NYSE: WMT) and JC Penney (NYSE: JCP) with Outperform ratings and a $52 target and $68 target, Macy's (NYSE: M) with a Market Perform rating and $35 target, and Nordstrom (NYSE: JWN) with an Underperform rating and $38 target.
  
• Bear Stearns started shares of Coca-Cola Enterprises (NYSE: CCE), PepsiCo (NYSE: PEP) and Pepsi Bottling Group (NYSE: PBG) with Peer Perform ratings on valuation.
  
• Wachovia initiated Discovery Holding (NASDAQ: DISCA) with a Market Perform rating on valuation.

• Genzyme (NASDAQ: GENZ) was initiated with a Sector Performer rating at CIBC.
  
• UBS resumed coverage of Capital Trust (NYSE: CT) and CapitalSource (NYSE: CSE) with Neutral ratings and targets of $35 and $18, respectively.

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MOST NOTEWORTHY:

• Jefferies upgraded shares of RadiSys (NASDAQ: RSYS) to Buy from Hold following the Q3 upside to reflect the large ramp of new business expected in 2008.
  
• Lehman raised its rating on Diageo plc (NYSE: DEO) to Equal Weight from Underweight and has increased confidence that the group can increase margins.
  
• CIBC upgraded shares of Vitesse (NASDAQ: VTSS) to Sector Performer from Sector Underperformer following the company's business update, as they believe progress is being made on numerous fronts.
  
• Nollenberger upgraded shares of Big 5 Sporting Goods (NASDAQ: BGFV) to Buy from Neutral following the better-than-expected Q3 results and improved full-year outlook, as they believe visibility has improved significantly.
  
• Citigroup upgraded Coca-Cola Enterprises (NYSE: CCE) to Buy from Hold on valuation as they believe the stock is undervalued given Glaceau's expansion to European markets. The broker recommends taking profits in Pepsi Bottling Group (NYSE: PBG) and swapping into CCE.

• Baird upgraded Modine Manufacturing (NYSE: MOD) and Accuride (NYSE: ACW) to Neutral from Underperform.
  
• Deutsche Bank upgraded Energizer (NYSE: ENR) to buy from Hold.
  
• Goldman added Celanese (NYSE: CE) to its Conviction Buy List.

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MOST NOTEWORTHY:

• Oppenheimer upgraded shares of Motorola Inc. (NYSE: MOT) to Buy from Neutral on valuation, and is positive on the company's free cash flow generation.
  
• Wachovia raised Paccar Inc. (NASDAQ: PCAR) estimates to Market Perform from Underperform based on better-than-expected European performance.
  
• Citigroup upgraded shares of Pacific Sunwear (NASDAQ: PSUN) to Buy from Hold as they believe the demo division divestiture and improving product execution in core PacSun stores could drive accelerating EPS growth.
  
• Citigroup also upgraded shares of Talbots Inc. (NYSE: TLB) to Hold from Sell on valuation but remains concerned about the company's long-term outlook.
  
• Roth Capital upgraded RightNow Technologies (NASDAQ: RNOW) to Buy from Hold, as they are encouraged by RNOW's Q3 results and raised guidance and believes the worst is behind the company.

• Goldman added Pfizer (NYSE: PFE) to its Conviction Buy List.
  
• Thomas Weisel upgraded Akamai (NADAQ: AKAM) to Overweight from Market Weight.
  
• Lehman upgraded Harley Davidson (NYSE: HOG) to Equal Weight from Underweight.
  
• Gabelli upgraded Coca-Cola Enterprises (NYSE: CCE) to Hold from Sell.

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Hansen Natural (NASDAQ: HANS) implied volatility Flat as HANS near record high. HANS markets and distributes beverages. HANS has a market cap of $4.69 billion. Goldman Sachs says "we continue to be optimistic about the company's prospects for the full-year and into 2008 based on; 1) distribution benefits from the Anheuser Busch (NYSE: BUD) agreement, and 2) the positive early read on the newly launched Java Monster." HANS October option implied volatility of 43 is near its 17-week average according to Track Data, suggesting non-directional price risk.

Cott (NYSE: COT) volatility Elevated as COT sells off 18% on lower guidance. COT, a supplier of retailer brand beverages, is recently down $1.89 to $8.27.COT lowered financial guidance, citing weaker than expected volumes and higher input costs. BMO Capital Markets says "if there is good news, it is that some degree of the profit warning may already be priced into the share price." COT announced on 4/13/07 "COT has responded to interested parties that have approached the Company, and is exploring the potential benefits of participating in possible industry consolidation." COT October option implied volatility of 56 is above its 26-week average of 40 according to Track Data, indicating larger price fluctuations.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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MOST NOTEWORTHY:

• Baird reduced estimates across the board in the process control sector due to lower expectations for North American industrial and residential construction. The firm downgraded Roper Industries (NYSE: ROP), Regal-Beloit Corp (NYSE: RBC) and Baldor Electric (NYSE: BEZ) to Neutral from Outperform and AO Smith Corporation (NYSE: AOS) to Underperform from Neutral.
• Goldman downgraded shares of R.H. Donnelley Corporation (NYSE: RHD) to Neutral from Buy after the company updated its 2007 guidance to reflect deteriorating trends in local advertising.
  
• Vonage Holdings Corp (NYSE: VG) was downgraded to Sell from Hold at Soleil due to liquidity concerns.
  
• Coca-Cola Enterprises (NYSE: CCE) was downgraded to Hold from Buy at Deutsche Bank on valuation and mixed near-term trends.
  
• Transocean Inc (NYSE: RIG) was downgraded to Hold from Buy at Gabelli. Even though the deepwater market continues to be strong, the firm is concerned regarding the continuing weakness in the jackup market as well as the limited upside potential due to the company's ships being in use through 2009.

• XM Satellite Radio Holdings (NASDAQ: XMSR) and Sirius Satellite Radio Inc (NASDAQ: SIRI) were downgraded to Neutral from Buy at UBS.
  
• Blue Nile Inc (NASDAQ: NILE) was downgraded to Neutral from Buy at Suntrust.
  
• Citigroup downgraded shares of CheckFree Corporation (NASDAQ: CKFR) to Hold from Buy.
  
• Morgan Stanley downgraded McAfee Inc (NYSE: MFE) to Underweight from Equal Weight.

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The world's largest maker of Pepsi-Cola beverages is not PepsiCo (NYSE: PEP) itself, but a 1999 PepsiCo spin-off with the clearest mission statement in corporate America.

Pepsi Bottling Group (NYSE: PBG) is engaged in the manufacture, sale and distribution of Pepsi-Cola beverages. The firm operates about 300 manufacturing and distribution facilities and delivers Pepsi-Cola, Aquafina water, Lipton's Iced Tea, Mountain Dew, Tropicana juice, Starbucks Frappuccino and Slice to stores and third-party distributors. PBG operates in North America and Europe, accounting for more than half of the Pepsi-Cola beverages sold in North America and about 40% of the worldwide volume. Coca-Cola Enterprises (NYSE: CCE) is a major competitor.

There was good news for PBG investors last week, when Goldman Sachs raised its rating on the beverage group to "attractive." The analyst noted the potential for improved performance, as costs for most of the commodities used to make and bottle beverages stabilize.

Brokers recommend the shares with four "strong buys", one "buy", nine "holds" and one "sell". The PBG P/E ratio (16.60), PEG ratio (1.70), Price to Sales ratio (0.64), Price to Book ratio (3.76), Price to Cash Flow ratio (7.01), Price to Free Cash Flow ratio (30.50), EPS Growth rate (14.75%) and Return on Equity (24.91%) compare favorably with industry, sector and S&P 500 averages. Institutions own about 61% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $30.13 and $37.35. A stop-loss of $32.25 looks good here. Note that the firm is next expected to announce quarterly results in the first week of October.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

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MOST NOTEWORTHY:

• Goldman Sachs upgraded the U.S. beverage sector, including Coca-Cola (NYSE: KO), Molson Coors Brewing Company (NYSE: TAP), Anheuser Busch Companies (NYSE: BUD), PepsiAmericas Inc (NYSE: PAS) and Coca-Cola Enterprises (NYSE: CCE) to Attractive from Neutral. The firm cited expectations for a stronger 2008, benign commodity cost outlook, better than expected US beer demand, and valuations. Goldman upgraded shares of PepsiCo Inc (NYSE: PEP) to Buy from Neutral citing valuation and improving industry fundamentals.
  
• Bear Stearns upgraded ImClone (NASDAQ: IMCL) to Outperform from Peer Perform citing positive Flex trial results and the new market opportunity for Erbitux.
• Thomas Weisel upgraded Starwood Hotels (NYSE: HOT) and Marriott International (NYSE: MAR) to Market Weight from Underweight based on healthy August trends, credit market may ease concerns over supply growth, and valuations.

• Thornburg Mortgage (NYSE: TMA) was upgraded to Buy from Neutral at UBS.
• Western Digital Corp (NYSE: WDC) was upgraded to Outperform from Peer Perform at Bear Stearns.
• KeyBanc raised Ruby Tuesday (NYSE: RT) to Hold from Underweight.
• Take-Two Interactive Software (NASDAQ: TTWO) was upped to Buy from Hold at Gabelli.

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MOST NOTEWORTHY:

• QLogic (NASDAQ: QLGC) was cut by several firms:
  
• QLogic was cut to Neutral from Outperform and removed from JP Morgan's Focus List due to the lack of catalysts to drive shares higher.
  
• Caris cut shares to Average from Above Average and Pacific
  
• Crest downgraded QLogic to Sector Perform from Outperform as the company's profits decline.

• Citigtroup downgraded CNet Networks (NASDAQ: CNET) to Hold from Buy as they no longer expect material revenue growth acceleration and operating leverage in 2H07; First Albany cut shares to Neutral from Buy.

• HSBC downgraded shares of Taiwan Semiconductor (NYSE: TSM) to Neutral from Overweight to reflect worse than expected pricing pressures.

• Matrix downgraded shares of Darden Restaurants (NYSE: DRI) to Hold from Buy on increasing competition and rising costs.

• Piper cut Anadys Pharma (NASDAQ: ANDS) to Underperform from Outperform following the company's announcement that it has discontinued development of ANA975...

• First Albany cut Zimmer Holdings (NYSE: ZMH) to Buy from Strong Buy.

• Bear Stearns downgraded AutoNation (NYSE: AN) to Peer Perform from Outperform.

• Piper Jaffray downgraded Volcom (NASDAQ: VLCM) and Sierra Wireless (NASDAQ: SWIR) to Market Perform from Outperform.

• Bernstein downgraded Coca-Cola Enterprises (NYSE: CCE) to Underperform from Market Perform.

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So who is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages? Here's a hint. It is not PepsiCo (NYSE: PEP). It is, in fact, a 1999 PepsiCo spin-off headquartered in Somers, New York.

Pepsi Bottling Group (NYSE: PBG) is engaged in the manufacture, sale and distribution of Pepsi-Cola beverages. The firm operates about 300 manufacturing and distribution facilities and delivers Pepsi-Cola, Dr Pepper, Aquafina water, Lipton's Iced Tea, Mountain Dew, Tropicana juice, Starbucks Frappuccino and Slice to stores and third-party distributors. PBG operates in North America and Europe, accounting for more than half of the Pepsi-Cola beverages sold in North America and about 40 percent of the worldwide volume. Coca-Cola Enterprises (NYSE: CCE) is a major competitor.

The company pleased investors earlier in the week, when it reported Q2 EPS of $0.70 and revenues of $3.36 billion. Analysts had been expecting $0.63 and $3.29 billion. Management also guided FY07 EPS to $2.02-$2.07, versus Street consensus of $1.98. PBG shares popped into the initial stage of a bullish "pennant" consolidation pattern on the news. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the shares with three "strong buys," one "buy," ten "holds" and one "sell." The PBG P/E ratio (16.08), Price to Sales ratio (0.62), Price to Book ratio (3.64), Price to Cash Flow ratio (6.81), Price to Free Cash Flow ratio (29.56) and Return on Equity (24.91%) compare favorably with industry, sector and S&P 500 averages. Institutions own about 58% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $30.13 and $36.47. A stop-loss of $31.35 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.

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In another indication that healthier premium beverages are supplanting soft drinks, Coca Cola (NYSE: KO) has agreed to pay Glaceau, the maker of Vitaminwater, for $4.2 billion in cash and stock.

While it's not exactly a cheap purchase, I think it makes a lot of sense for Coke. Vitaminwater has had huge growth of late, and that looks likely to continue. With sales of soft drinks flat or even declining, it needs something to drive revenue growth.

This should also be seen as good news for Berkshire Hathaway (NYSE: BRK.A), a major Coke shareholder. Chairman Warren Buffett is regularly seen drinking Cherry Coke, especially at annual meetings but, as he gets older and investors worry about who will succeed him, a switch to a more healthful, vitamin-filled, lower-calorie beverage could extend his tenure at the helm of Berkshire.

Shares of Coke were up on news of the deal, and the price tag could be used to assign a value to other next-generation beverage companies. It makes Hansen Natural (NASDAQ: HANS) look interesting, with its market cap of around $3.6 billion.

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In titling this post, I was going to go with the inevitable pun of "Zero being The Coca-Cola Company (NYSE: KO) Hero" but, unfortunately, The Wall Street Journal beat me to the punch. As consumers move away from soda and toward more healthful premium beverages (such as Vitamin Water, my personal favorite), Coke has had surprising success with Coke Zero, a zero-calorie version of Coke which apparently tastes less like poison than regular Diet Coke. According to Coca Cola Chairman and CEO E. Neville Isdell, the initial success of Zero makes it Coke's most successful new product launch in 20 years.

As a young consumer, I believe that Coke Zero's success is largely a function of slick marketing campaign. They've actually managed to make diet soda cool. The slick ad campaign, which included slick, GQ-esque ads, in addition to funny ads that invited readers to sign up for a class-action lawsuit suing Coke Zero for tasting too much like regular Coke.

As beverages from companies like Jones Soda gain in popularity and cache, the traditional soft drink companies will need to revitalize their images. Coke has done just that with Coke Zero and they will probably continue to experience success.

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