Thursday, November 6, 2014

Coca Cola (KO) 2014 Review

Coca Cola (KO) is the world’s largest beverage company marketing through a network of company owned and independent bottlers over 500 nonalcoholic beverages worldwide including Coca Cola, Sprite, Barq’s, Xtra, Fanta, Fresca, Dasani, Evian, Danone, Powerade and Minute Maid. The company has grown profits and dividends 9-10% for the past 10 years earning a 27-30% return on equity. We expect the company to continue to do well as a result of:

(1) its incomparable portfolio of sparkling and still beverages as well as juices,

(2) increased marketing effort,

(3)  management aggressive effort to improve productivity,

            (4) new product innovation,

(5) geographic expansion especially in emerging market countries [Russia, Brazil, China].

Negatives:

(1) it is in a highly competitive industry,

(2) its sensitivity to volatile commodity prices,

(3) its international operations expose it to the risks of currency fluctuations,

(4) soft economic conditions,

(5) slowing growth in carbonated beverages.

KO is rated A++ by Value Line, has a 36% debt to equity ratio and its stock yields 3.0% which has been raised for 47 consecutive years.

    Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2004

KO            3.0%           8                   58%              10
Ind Ave     2.3             10*                38                NA 

                Debt/                        EPS Down       Net        Value Line
                Equity         ROE      Since 2004     Margin       Rating

KO           36%            27%            1                20%           A++
Ind Ave    37               24             NA              14              NA

*many companies in KO industry do not pay dividends

       Chart

            Note: KO stock made great progress off its March 2009 low, quickly  surpassing the downtrend off its January 2008 high (straight red line) and the November 2008 trading high (green line).  Long term, it is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  The wiggly red line is the 50 day moving average.  The Dividend Growth and High Yield Portfolios own 75% positions in KO, having Sold Half in early 2008 and it having experienced subsequent appreciation.  The upper boundary of its Buy Value Range is $39; the lower boundary of its Sell Half Range is $62.
  


11/14

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