ST. LOUIS -(Dow Jones)- Prudential Equity Group initiated coverage of the beverage industry Friday, with PepsiCo Inc. (PEP) (PEP) its top choice for investors.

For the industry overall, Prudential issued a neutral rating, noting that beer companies have been battered by increasing competition from wines and liquors and that sales of carbonated soft drinks have been slowed by non-carbonated drinks.

"PepsiCo (PEP) has 'the whole package,'" said beverage analyst Cheryl Gedvila in a note, "with a product portfolio well positioned to capitalize on health-and- wellness trends and growing demand for convenience foods."

She noted that "food accounts for approximately 65% of earnings" and " PepsiCo's (PEP) portfolio is balanced between non-carbonated and carbonated beverages." She rates it overweight with a $68 price target.

Prudential rates Pepsi Bottling Group Inc. (PBG) neutral with a $32 target. " While PBG has performed better than its peers," Gedvila said, most of its business "is tied to the U.S. carbonated soft drink market."

Also rated neutral are: Coca-Cola Enterprises Inc. (CCE) (CCE) with a $21 target, Coca-Cola Co. (KO) (KO) at $47, and Anheuser-Busch Cos (BUD). (BUD) at $44.
Molson Coors Brewing Co. (TAP) (TAP) is rated underweight with a $65 target.

While "impressed with the synergies Molson Coors is making," Gedvila said, its markets, including Canada, the U.S. and Europe, "remain among the most challenged."

Prudential Equity Group does not make a market in any of the companies mentioned. The analyst has no apparent conflicts.

By Greg Edwards
Dow Jones Newswires
314-588-8443;
greg.edwards@dowjones.com

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