Coca-Cola (KO) Stock Analysis
Current Dividend: $1.48
Dividend Yield: 3.3%
Cash Dividend Payout Ratio: 67%
Market Capitalization: 194 B
Enterprise Value: 216 B
Sector: Consumer Defensive
Industry: Beverages – Soft Drinks
Coca-Cola (KO) manufactures, distributes and markets non-alcoholic beverage concentrates and syrups. Coca-Cola’s 30% global market share in beverages includes brands such as Coca-Cola, Coca-Cola Zero, Dasani, Diet Coke, Fanta, Vitaminwater, Minute Maid, Odwalla, Powerade, Sprite, and Simply Orange.
Coca-Cola’s most valuable strength is its brand. The Coca-Cola brand is known and well-respected throughout much of the world. Their products can be found in over 200 countries; largely because of their unmatched direct-to-store delivery distribution network.
Customer loyalty is high. With only one major competitor (Pepsi) KO has many advantages including tremendous economies of scale. Their brand, manufacturing and distribution systems, and established relationships with retailers worldwide provide significant barriers to entry for any potential new competitors.
A lack of product diversification is KO’s greatest weakness. While Pepsi has been able to diversify into other segments, Coca-Cola relies on the beverage industry for its profits and future growth.
Another problem (or weakness) is Coca-Cola’s need for massive amounts of pure water. In a world with shrinking supplies of potable water, the company’s need for water becomes critical.
Coca-Cola’s strengths (brand, distribution network) give it unparalleled opportunities in the developed and under-developed markets. Their superior system of production and distribution of their products (supply chain) gives them advantages to launching new products or purchasing products from other companies that could enable Coca-Cola to grow.
Water rationing or lack of water sources is Coca-Cola’s biggest threat. Without water the company would be in serious trouble.
The next biggest threat is the trend towards healthier beverages. The company must adapt to consumer preferences; including the demand for less sugary drinks.
Dividend Analyzer Checklist
(updated January 2017)
Dividend Safety Score (12/33 points)
Dividend Per Share (ttm): $1.38
Dividend Payout Ratio (ttm): 62%
Dividend Per Share (10 Year Growth): 9.0%
Cash From Operations (CFO) Per Share (ttm): $2.02
CFO Dividend Coverage (CFO / DPS): 1.5 (0/6 points)
Free Cash Flow (FCF) Per Share (ttm): $1.47
FCF Dividend Coverage (FCF / DPS): 1.1 (1/6 points)
Net Financial Debt: $21655 M
Total Assets: $93927 M
Net Financial Debt / Total Assets: 23% (7/12 points)
Net Financial Debt to EBITDA (ttm): 399%
Total Liabilities to Assets Ratio (Qtr.): 72%
Piotroski Score (1-9) (TTM): (4/9 points)
Profitability & Growth Score (20/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 6.7% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 5.2% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 5.1% (6/6 points)
Operating Earnings Yield (ttm): 4.8% (0/7 points)
Net Income (ttm): $7214 M
Gross Profit (ttm): $25729 M
Total Assets: $93927 M
Gross Profitability Ratio = GP / Total Assets: 27% (6/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 9%
Return on Invested Capital (ROIC): 10%
Return on Invested Capital (ROIC) (5 Year Median): 12%
Return on Invested Capital (ROIC) (10 Year Median): 16%
Valuation Score (8/34 points)
Free Cash Flow Yield (ttm): 3.5% (4/9 points)
EV to EBIT (ttm): 20.6 (0/9 points)
EV to EBITDA (ttm): 17.3 (0/9 points)
PE10: 24.7 (4/7 points)
Price to Sales Ratio (ttm): 4.1
Price to Book Value (ttm): 6.6
Price to Earnings Ratio (P/E) (ttm): 24.3
TOTAL POINTS – (40/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
Latest Earning Report: 9/26/2016
Estimated Next Earnings Report: 2/09/2017
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(updated December 2016)
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / AVOID
Looking For Exposure to Consumer Defensive Sector / AVOID
Deep Value Investors / AVOID
Coca-Cola is ranked #172 (out of 246) overall and #25 (out of 34) in the Consumer Defensive sector by the Dividend Analyzer.
KO has been of the most consistent and profitable companies in the world. The profitability and consistency of this company has caused investors to bid the price up to the point where there is no margin of safety. Given the high stock valuation the company will have to outperform to provide even average stock returns in the long run. This is somewhat unlikely given the current competitive climate.
I would consider Pepsi (PEP) a more attractive alternative for diversified dividend portfolios that want to own one of the two companies.
Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth: None
DVB High Income: None
Arbor Asset Allocation Model Portfolio (AAAMP): None
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