Coca-Cola a Powerful Part of Any Portfolio

Friday, 11 May 2012 04:07 PM

By Greg Brown

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Coca-Cola (KO), as far as investors are concerned, truly is the real thing. Its huge global brand and inexpensive offerings make it a powerful part of any portfolio. Analysts, however, see even better days ahead as Coke develops its reach into quicker growth in emerging market countries.

Coca-Cola is the world's largest beverage company. It owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.

Coke owns the world's top nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. Finished beverage products bearing its trademarks, sold in the United States since 1886, are now sold in more than 200 countries.

KO makes its branded beverage products available to consumers throughout the world through a network of company-owned or controlled bottling and distribution operations, as well as independently owned bottling partners, distributors, wholesalers and retailers.

Of the approximately 56 billion beverage servings of all types consumed worldwide every day, beverages bearing trademarks owned by or licensed to Coca-Cola account for more than 1.7 billion.

“The Coca-Cola system sold approximately 26.7 billion, 25.5 billion and 24.4 billion unit cases of our products in 2011, 2010 and 2009, respectively. Sparkling beverages represented approximately 75 percent, 76 percent and 77 percent of our worldwide unit case volume for 2011, 2010 and 2009, respectively,” Coke management reported in a recent filing.

“Trademark Coca-Cola beverages accounted for approximately 49 percent, 50 percent and 51 percent of our worldwide unit case volume for 2011, 2010 and 2009, respectively.”

On Oct. 2, 2010, KO acquired the North American business of Coca-Cola Enterprises (CCE), one of its major bottlers, consisting of CCE's production, sales and distribution operations in the United States, Canada, the British Virgin Islands, the U.S. Virgin Islands and the Cayman Islands, and a substantial majority of CCE's corporate segment.

The company has a market cap of $174.79 billion in a sector, beverages, where the average company size is $9.55 billion. Its trailing 12-month P/E ratio is 20.59 and its five-year projected price-to-earnings-growth (PEG) ratio is 3.05, compared to 2.73 for the sector.

Its projected earnings per share growth for the coming year is 9.51 percent, compared to a sector average of 10.76 percent.

Emerging markets


Wall Street is broadly bullish on Coke. Buy or outperform ratings are in from Jefferies, Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, and Standard & Poor’s.

“With recent raw material cost softness, we look for more benign impact in remaining quarters. Longer term, we see KO benefiting from growing exposure to emerging and developing markets, where we project higher growth rates than in developed ones,” S&P analysts wrote May 9.

“We think KO will generate strong free cash flow, which we see being returned to shareholders via dividends and buybacks.”

KO next reports on July 17.

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