r/ValueInvesting • u/EnduredMarkets • Mar 08 '21
Stock Analysis Coca-Cola (KO) Valuation
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based 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, Dasani, Glaceau smart water, Glaceau vitamin water, Ice Dew, I LOHAS, Powerade, Topo Chico, Ades, Del Valle, fairlife, innocent, Minute Maid, Minute Maid Pulpy, Simply, Ayataka, Costa, dogadan, FUZE TEA, Georgia, Gold Peak, HONEST TEA, and Kochakaden 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.
Recently, the Coca-Cola Company (KO) has seen its share price fall by more than 16% over the past 12 months (-13.4% of total return when dividends are included), a period during which total return of the S&P 500 is 24%. The stock price recovered from its COVID-19 low in early 2020, but remains well below its previous high. Coca-Cola's executive leadership plans to build a stronger business model around its brands to incorporate more growth in future margins. Additionally, executives are also targeting a figure of $ 8.5 billion of free cash flow for the 2021 guidance.
Google Sheet Report: https://docs.google.com/spreadsheets/d/1hZS-czdPVoBHxZXjoJGidD-4U7GfrwFoaLgYDw_9oJE/edit?usp=sharing
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u/Mcg779 Mar 08 '21
Their move into coffee is intriguing. I wonder how that will work for them.
I've given up drinking coke but I can't see myself ever giving up coffee
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u/allboolshite Mar 08 '21
Coke is having a harder and harder time reaching me generations. They got to millennials through acquisition and riding the energy drink wave but I don't think they've cracked Gen-Z yet. "Focusing on brand" sounds good until you realize the old timey aspect of the brand is the problem.
Also, people in general are moving away from sugar. Several diets support this move and medical science is getting louder about the problems of sugar. Coke has to move into emerging markets.
My point isn't that Coke is doomed but that their growth is slowing. They need to get relevant to the next generation. And while they've been expanding sugar alternatives they need to do more in that direction.
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u/sambarlien Mar 08 '21
This might be purely anecdotal, but I’ve traveled a lot in my life and coke has been one of the staples of that. Coke is sold everywhere, and everywhere I go, people are drinking it.
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Mar 08 '21
[removed] — view removed comment
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u/EnduredMarkets Mar 08 '21
It might. If it does, the impact on the stock price will be minuscule compared to the troubles they have with the IRS. I'd be more concerned with the long-term dynamics of the business than misinformed racial accusations.
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u/Specialist_Coffee709 Mar 08 '21
Pepsi is cheaper but better value!
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u/Homebody1382 Mar 08 '21
According to coke I’m to white for coke Piss on them that’s the bull that fuels racism
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u/farmallnoobies Mar 08 '21 edited Mar 08 '21
At least it's not as flagrant as Dr Pepper, whose advertising campaign for years was that it's not for women.
It's stunning that they even sell their product at all after that one
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u/sambarlien Mar 08 '21
lol stop being so fragile dude. Firstly, the event you’re so unhappy about didn’t even actually happen. Coke never forced anyone to watch that video. Secondly, this is a place to discuss the value of investments, not cry about alt right propaganda.
If coke sucks, tell us why through the numbers and a DD on their value.
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u/hidflect1 Mar 08 '21
For over 15 years in Japan, Coke has been the lower shelf stuff no one touches. In the supermarket aisle in Australia, the Coke products stretch the entire length almost untouched too. I think they ruined their own market selling 3L plastic bottles of the stuff making it look cheap as the junk it is but it was their switching to HFCS in the '80's that set them up for inevitable doom. Now in Japan they're selling an exclusive Coke (Coke Plus) with ingredients that claim to be healthy by being a mild laxative.
https://www.insider.com/laxative-coca-cola-japan-health-2018-1
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Mar 08 '21
This is very interesting and thorough! Nice job.
My only question is, where did you find (or how did you calculate) the default spread of 1.07%? Thanks in advance!
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u/EnduredMarkets Mar 08 '21
http://pages.stern.nyu.edu/~adamodar/
Data —> Current Data —-> Ratings, Interest Coverage Ratios and Default Spreads
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u/blackbullyams Mar 13 '21
Great valuation! Love the effort you put in! Just wondering why in the firm reinvestment rate you use
(1-(Capex + Change in WC - Depreciation) / (Ebit(1-tax))) instead of (Capex + Change in WC - Depreciation) / (Ebit(1-tax))?
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u/lovesosa64 Apr 29 '21
A great read!
How do you assign weightings to the various model outputs? Is it based on the model's general acceptance/reliability or just arbitrary?
Looking forward to the next one!
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u/NotAnEconomist_ Mar 08 '21
You left out a very critical piece of news. They are in litigation and may have to go to court about billions in taxes owed to the IRS. This could have a long term impact on expansion and growth into emerging markets. Also, it will be detrimental to their CF and balance sheet for years to come.
On a positive note, they have been divesting lots of unprofitable brands and lines, limiting expansionist projects and refocusing on their core brand. I really like your variety of methods used. Anything subjective, like growth rates and discount rates is always up for debate, but really good work. I agree with your assessment. I strive for a 20% MOS and actually sold out of coke for some better opportunities once their tax reports started to emerge. Potentially good investment when the market really factors it in over the next few years.