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Analysis of The Coca-Cola Company

Analysis of The Coca-Cola Company

11 May 2022

Coca-Cola is a manufacturer of soft drinks that are sold all over the world. The company’s assortment consists of:
— carbonated soft drinks;
— flavored water;
— sports drinks;
— juices, dairy products and plant-based beverages;
— tea and coffee;
— energy drinks.
Coca-Cola also offers concentrates and syrups for beverage production. The company sells its products under the brands Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, Fanta, Fresca, Schweppes, Sprite, Thums Up, Aquarius and dozens of other brands around the world. Coca-Cola operates through a network of independent bottling partners, distributors.

The company was founded in 1886 and is headquartered in Atlanta, Georgia.
Coca-Cola is the largest company in the soft drinks industry. Its market capitalization is $277 billion. Over the past 4 years, the company has increased revenue, profit and free cash flow by 10-20%. Revenue and profit reached the highest values in the last 12 months. That is, to date, the company is doing well with the inflow.

Current multipliers:
P/E 27.3, forward P/E 26 (current average for competitors 29.9)
P/B 11.3 (industry average 6.7)
P/S 7 (industry average 3.5)
Debt of $41.7 billion with current operating cash flow of $11.6 billion
Dividends 2.7%
Share Price: $64

The cash flow discounting model shows a fair price of $62.
Simply Wall Street values the company at $75.
19 analysts give an average estimate of $70 per share.

Coca-Cola has a consistently high debt, now it accounts for 63% of the capital, and only 37% are assets. In recent years, the company simply prolongs loans, paying about the same amount as it borrows. But with an increase in interest rates, the amount of interest payments will begin to grow noticeably and it is bad that the company has not prepared for such a scenario by lowering the debt burden. However, investors like the company for a different reason. Coca-Cola is the most powerful global brand, the business has been built for decades and is very stable, and it also has been increasing dividend payments for 59 years in a row! The company pays 74% of the profit, so it can safely pay dividends further.
Another huge advantage is the ROE of 42%. The company does not produce more than half of its products itself, it is done by its representatives in different countries and cities. Coca-Cola only supplies them with a concentrate, a recipe. Thus, the costs of doing business are reduced.

Stocks are trading slightly below the 20-day moving average and above the 50 and 200-day moving averages. The 200-day MA runs at 58.5, and we believe this is the first target of the decline. The ideal interval for long-term purchases is between $40 and $50. We don’t know when the exchange rate will reach these levels, but now the shares look overvalued.

Over the past year, insiders have sold shares 8 times at a price from $55 to $62. And they never bought it. That is, they see that the price is a little too high. Coca-Cola belongs to the type of stocks that are bought for stability and dividend yield. For dividends, a good mark is 4% per annum. The shares reached this price last time in June 2020, since then the yield has only been falling. Now, if the stock continues to decline, the dividend yield will continue to rise. To reach 4%, the price should be $44. Accordingly, we can recommend starting to get positions in Coca-Cola from $50 and below.

11 May 2022
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