Cola Giants in Carcinogenic Row - Analyst Blog

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Cola giants PepsiCo Inc ( PEP ) and Coca-Cola Co ( KO ) recently announced that they will update the manufacturing process of the caramel color used in all their products. The added caramel coloring is said to be associated with cancer.

Both Coca-Cola and PepsiCo use caramel coloring to give their respective colas a distinctive brown color. The Center for Science in the Public Interest ( CSPI ) recently released studies which showed that the caramel coloring contains large amounts of a chemical, 4-ethylimidazole (4-MI), which has been associated with cancer in animals. Accordingly, CSPI has requested the US Food and Drug Administration (FDA) to ban the use of caramel coloring. The FDA is currently reviewing the issue. Moreover, both Pepsi and Coke have recently been proposed to be brought under a Californian rule which makes it mandatory for beverages with a certain level of cancer causing substances to carry warning labels.

This threat of having to include warning labels has triggered both PepsiCo and Coca-Cola to ask their caramel supplier to alter the manufacturing process to reduce the level of the disputed chemical in the caramel. The companies however asserted that their products do not carry any cancer risk and the manufacturing change will have no effect on the color, quality or taste of their popular beverages. PepsiCo's caramel suppliers have already made the change in California and the company is looking forward to making the change elsewhere in US.

Our Recommendation

We currently have a Neutral recommendation on PepsiCo and Coca-Cola. However, the Coca-Cola stock carries a Zacks #3 Rank ('Hold' rating) while PepsiCo retains a Zacks #4 Rank ( 'Sell' rating) over the short term.


 
COCA COLA CO ( KO ): Free Stock Analysis Report
 
PEPSICO INC ( PEP ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CSPI , KO , PEP

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