Could Coca-Cola Be Facing a Slowdown?

With shares of The Coca-Cola Company (NYSE:KO) trading at around $42.24, is KO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The word “okay” is the most understood word in the world. The second-most understood word in the world is “Coke.” This is mindboggling in a way, but it’s also a testament to the immense brand name that Coca-Cola has established. The rest of the world is also a very important place for Coca-Cola right now. With Americans slowing down their soda consumption due to health concerns, Coca-Cola must look for growth elsewhere. That said, the slowdown in soda consumption isn’t as severe as others have advertised, and Coca-Cola is a highly innovative company that has the potential to produce and sell new products to sell in the United States. It has already entered the energy drink market with Full Throttle and Burn. While Full Throttle and Burn haven’t torn the cover off the ball, it’s still early in the game, and Coca-Cola is highly strategic when it comes to marketing efforts.

Prior to moving ahead with Coca-Cola’s current situation, and whether or not the stock looks ripe for an investment here, let’s take a quick look at some interesting facts about the company:

  • 1.7 billion of Coca-Cola products are consumed daily
  • 2.8 million Coca-Cola vending machines throughout the world
  • Company claims to have created the modern image of Santa (big, jolly, dressed in red)
  • Founder John Pemberton averaged nine sales per day in 1886

In regards to Coca-Cola’s current situation, while Q1 wasn’t overly impressive, a company like Coca-Cola shouldn’t be evaluated on a quarter-by-quarter basis. It’s the most valuable brand in the world. Therefore, it’s likely to reward investors over the long haul. The stock did lose approximately 30 percent in 2008/early 2009, but that was better than most stocks at that time, and losses were recouped. Dividends were paid along the way. Actually, Coca-Cola has raised its dividend for 51 consecutive quarters.

Other positives for Coca-Cola include strong margins, strong cash flow, consistent profits, a 2.70 percent yield, and a miniscule short position. The latter indicates that shorts are wise enough to stay away from a stock that is likely to perform well. As far as analysts go, they love the stock: 12 Buy, 7 Hold, 0 Sell.

Now let’s take a look at some numbers. The chart below compares fundamentals for Coca-Cola, Pepsico (NYSE:PEP), and Dr Pepper Snapple (NYSE:DPS). Coca-Cola has a market cap of $188.30 billion, Pepsi has a market cap of $128.20 billion, and Dr Pepper has a market cap of $10.03 billion.

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KO

PEP

DPS

Trailing   P/E

22.10

21.23

16.38

Forward   P/E

18.05

17.38

14.75

Profit   Margin

18.19%

9.33%

10.53%

ROE

26.59%

27.15%

28.14%

Operating   Cash Flow

$10.63 Billion

 $9.87 Billion

  $843.00 Million

Dividend   Yield

2.70%

2.60%

3.20%

Short   Position

0.90%

0.80%

3.40%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for Coca-Cola is weaker than the industry average of 0.60. However, it’s stronger than the debt-to-equity ratios for Pepsi and Dr Pepper.

Debt-To-Equity

Cash

Long-Term Debt

KO

1.07

$18.44 Billion

$35.12 Billion

PEP

1.31

$7.01 Billion

$29.40 Billion

DPS

1.25

$220.00 Million

$2.80 Billion

 

T = Technicals Are Strong   

Coca-Cola has outperformed its peers over a three-year time frame. However, it has underperformed its peers over the past year.

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1 Month

Year-To-Date

1 Year

3 Year

KO

4.19%

17.37%

12.79%

73.17%

PEP

4.15%

21.91%

29.53%

38.78%

DPS

5.81%

12.32%

27.21%

62.41%

 

At $42.24, Coca-Cola is currently trading above all its averages.

50-Day   SMA

40.38

100-Day   SMA

38.87

200-Day   SMA

38.49

 

E = Earnings Have Been Steady               

Earnings have been steady without being overly impressive on an annual basis, but revenue has consistently improved. The rate of revenue growth has slowed, but this is still impressive since many companies throughout the broader market saw reduced revenue in 2012.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

31.94

30.99

35.12

46.54

48.02

Diluted   EPS ($)

1.25

1.47

2.53

1.85

1.97

 

 

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   billions

11.14

13.08

12.34

11.46

11.04

Diluted   EPS ($)

0.45

0.61

0.50

0.41

0.39

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Emerging markets are an important piece to the puzzle right now. Since the majority of those populations aren’t as health-conscious as people in the United States, there is great potential for soft drinks.

In regards to domestic potential, innovation and marketing will be the keys to success. Based on the track records of Coca-Cola and Pepsi, success is likely. If there isn’t success, then acquisitions are always an option.

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Conclusion

It should come as no surprise that Coca-Cola is once again a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.