Coca–Cola is one of the most recognizable brand on the world and I guess there is no need to describe its’ product. Coca – Cola is present all around the world so it is a key question whether there is a space to grow. Company concentrates on volume growth in Emerging Markets, price/volume growth in Developing Markets and price realization in Developed Markets. Due to different purchasing parity such strategy seems ok. In long term demographics is a favorable trend. On the other hand obesity is a risk. As it comes to me – company was overcoming problems for many years and I see no reason why I should assume that there will be something wrong with business.

infographic-coca-cola-at-a-glance-2014-924-1591-fe7f31f7

(source: materials for investors, http://www.coca-colacompany.com/)

In Q3 company achieved 3% organic growth driven by price mix. Excluding currency growth would be higher – around 8% (in line with quick financial analysis below). Company is characterized by a strong cash flow generation (like every Dividend Aristocrat).

 

As it comes to financials (estimates):

Market cap ~ $187B

Net debt ~$24B

Payout ratio ~66%

ROE ~23%

Beta = 0.85

Estimated growth rate (g) = 0.33% * 23% = 7.6%

+ dividend yield 3% + buy-back, around $3B per year = 1.6%

 

Estimated valuation ratios:

P/E = 21

EV/EBITDA = 16.8

 

Coca-Cola is one of The Dividend Aristocrats. Currently share price is about all-time high and dividend yield is 3%. From historical point of view it is neutral level. During 2009 dividend yield spiked to around 4% but for most of time it was around 2.7%-3%. For me nothing to be excited about.

products coca cola

Source: materials for investors, http://www.coca-colacompany.com/)

Company’s business is quite stable, but looking at drawdown risk analysis can be misleading, due to a very high basis in late nineties.

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Nevertheless in “other years”, like after 2009 or 1985-1997 drawdown risk was small. This is why I assume that “current levels – 20%” are a good entry point, which means around $35 (then dividend yield would by 3.7% – attractive for me).

Potential negative factors:

  • Strong USD
  • Weakening growth of global economy

 

Summing up, Coca-Cola is a “must be” in every dividend portfolio but the case is price. During a panic in Aug 2015 company was trading at around $36 for a short time. In my opinion current valuation is high and I will wait until share price falls. Nevertheless in short term it is hard to assume that company will underperform market – for me neutral.

 

Disclaimer KO – no position