Sprint (S) and Coca-Cola (KO 0.15%) are both in strange positions in the consumer market. They're well-known brands with tens of billions in annual revenue, but they're not exactly exciting.
Coca-Cola is facing a gradual decline in soda sales to consumers who are choosing healthier drinks or even (gasp!) water. Sprint has always been engaged in an uphill battle against bigger telecoms Verizon and AT&T. That's one reason it's trying to merge with its nearest rival, T-Mobile.
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Stagnating markets
Sprint's business has been fairly stagnant for the last five years. Coca-Cola has been in decline, revenue-wise, but that's largely because it spun off its bottling operations in a series of transactions that ended in 2017. But even factoring out the spinoffs, the company has not been able to increase its case volume; what growth it has found has been driven by acquisitions and price increases.
S Revenue (TTM) data by YCharts
The challenge is, there's not a lot either company can do to drive growth naturally. Neither one has untapped geographies nor under-served segments of the market to address. As a result, they need to squeeze more out of their existing customers and get as much business as possible from adjacent markets. Price increases are their best revenue growth option, but the level of competition they face limits that strategy.
Show me the money
Coca-Cola may not be growing, but it is highly profitable and has about as durable a business as exists in consumer products.
Sprint, on the other hand, has struggled to generate profits. It banked a one-time benefit from the corporate tax cut passed in late 2017. But it still operates as a discount wireless company, and its business model is not going to change unless the merger with T-Mobile goes through.
When it comes to making money, Coca-Cola is the clear winner.
Value in consumer stocks
It's hard to argue that Coca-Cola stock is any kind of bargain today, trading with a trailing P/E ratio of 30.7. But that's the price of a stable stock with a dividend yielding 2.9% in a highly valued market.
Sprint, on the other hand, doesn't pay a dividend and doesn't have a positive P/E ratio, so it's hard to argue it's a better value by any measure.
The winner is...
I think Coca-Cola is the clear winner in this stock battle, and it remains one of the more stable consumer goods stocks, even if it isn't growing much. However, if Sprint's merger with T-Mobile goes through, and the combined company is able to lower costs, raise prices, and become a formidable competitor in 5G technology, it could turn out that its shares will have made the better investment. That's a lot of things that need to go right for the telecom, though, and betting on them is not a risk I'm willing to take when Coca-Cola is the safer option.
