Market News

KO, PEP Lose Their Fizz on FTC Pricing Probe

While some soda fans are die-hard supporters of Coca-Cola (NYSE:KO) and others back PepsiCo (NASDAQ:PEP), both took a bit of a hit in Tuesday’s trading session. The biggest reason? Both are now the targets of a Federal Trade Commission (FTC) probe over pricing.

Since this is a government agency we’re talking about, the ultimate cause of all this action is both disturbing and a little obscure. The issue at hand is whether or not Coca-Cola and PepsiCo violated a law called the Robinson-Patman Act. Under that law, brands are not allowed to engage in preferential treatment based on the size of a store. For instance, a big-box store can’t buy goods from a company for less than a mom-and-pop store can.

However, Robinson-Patman Act actions in the last several decades haven’t emerged often. Reports note that too much Robinson-Patman activity could have the unexpected consequence of hiking prices to customers. Former FTC general counsel Alden Abbott referred to the law as a “…special interest law” that gives support to small businesses. Others, however, believe that the FTC may be able to use a suit against Coca-Cola and PepsiCo to its–and normal consumers’–advantage. It may work as a barometer to see if Robinson-Patman suits really do more harm than good.

Overall, Wall Street generally sides with KO and PEP stocks, although they give stronger support to Coca-Cola with a Strong Buy rating compared to the Moderate Buy equivalent of PepsiCo. Thanks to KO stock’s average price target of $65.40, it has 5.34% upside potential. Meanwhile, PEP stock’s average price target of $184.40 offers 3.71% upside potential.

Disclosure

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