The Coca-Cola Company (KO)

Equity
US
Consumer Defensive

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Very strong margins and returns

Solid dividends

Greatly overvalued vs peers

Corporate actions & dividendsDividend of USD 0.485 with an ex-date of 14 Jun 2024.

Company profileThe Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; flavored and enhanced water, and sports drinks; juice, dairy, and plantbased beverages; tea and coffee; and energy drinks. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores. The company sells its products under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, Fanta, Fresca, Schweppes, Sprite, Thums Up, Aquarius, Ciel, dogadan, Dasani, glacéau smartwater, glacéau vitaminwater, Ice Dew, I LOHAS, Powerade, Topo Chico, AdeS, Del Valle, fairlife, innocent, Minute Maid, Minute Maid Pulpy, Simply, Ayataka, BODYARMOR, Costa, FUZE TEA, Georgia, and Gold Peak brands. It operates through a network of independent bottling partners, distributors, wholesalers, and retailers, as well as through bottling and distribution operators. The company was founded in 1886 and is headquartered in Atlanta, Georgia.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

25.10

22.90

PEG

4.30

P/B

10.30

6.80

P/S

5.90

P/FCF

27.00

22.40

EV/EBITDA

26.20

19.00

Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, and trading at neutral levels on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 7ppts over past six months and grown 2ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 70 and suggests 10% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 74.0. This translates into 17% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 60.0. This is equivalent to 5% downside potential in the worst case.

Profitability: Very strong

RoE

The Coca-Cola Company reported a return on equity (RoE) of 41.2% in the last 12 months, up from 40.5% in FY22. The market consensus projects an RoE of 44.3% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 10.9% in the last 12 months, an increase from 10.2% in FY22. The market analysts predict that RoA will be 12.2% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 14.9%, above the peers. The consensus estimate for FY24 for RoCE is 19.4%, again ahead of the peers.

Net margin

EBITDA margin

Historically, KO has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 23.4%, a growth from 22.2% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 25.1% in the last 12 months, a decline from 32.2% in FY22.

RoIC / WACC = 2.8(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.8 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

KO reported revenue of USD 46 074mn in the last 12 months, up 1% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 1% from FY23 to USD 2.50. Market expects EPS to reach USD 2.82 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while EBITDA has declined rapidly trend in recent years (strongly negative). Poor revenue growth and insufficient cost control translated into very slow bottom-line growth in recent years (negative-to-neutral). Free cash flow, at the same time, has performed better than EBITDA would suggest, and has been growing slowly. On the positive side, revenue, EBITDA and EPS dynamics is very stable.

Dividends: Solid

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note robust profitability and solid return on capital, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, excessive margin volatility, poor working capital management, and an unfavourable capital structure.

Volatility: Negligible

In normal market circumstances, KO is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, KO is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

KO boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.