Market Capitalization: $302.42 Billion
Shares Outstanding: 4.31 Billion
Sector: Consumer Defensive
Industry: Beverages—Non-Alcoholic
Analysis as of: October 4, 2024

 

1. Company Overview

The Coca-Cola Company (NYSE: KO) is a globally renowned beverage company founded in 1886 and headquartered in Atlanta, Georgia. It manufactures, markets, and sells a diverse range of non-alcoholic beverages worldwide.

Key Product Categories:

• Sparkling Soft Drinks: Coca-Cola, Diet Coke, Coca-Cola Zero Sugar, Fanta, Sprite.
• Water and Hydration: Dasani, Smartwater, Vitaminwater, Topo Chico.
• Juices, Dairy, and Plant-Based Beverages: Minute Maid, Simply, innocent, fairlife, AdeS.
• Tea and Coffee: Georgia Coffee, Gold Peak, Costa Coffee.
• Energy Drinks: Powerade, BODYARMOR.

Distribution Channels:

• Bottling Partners: Coca-Cola operates through a network of independent bottling partners who manufacture, package, and distribute the finished products.
• Direct-to-Consumer: The company also sells concentrates and syrups to fountain retailers such as restaurants and convenience stores.
• Digital Platforms: Leveraging e-commerce and digital marketing to reach consumers directly.

With a presence in over 200 countries, The Coca-Cola Company is one of the world’s most valuable brands and has a portfolio of more than 500 beverage brands.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $46.47 Billion
• Year-over-Year (YoY) Revenue Growth (TTM): +5.27%

Revenue Trend:

Fiscal Year	Revenue (in Billions)	YoY Growth
FY 2019	$37.27	+8.65%
FY 2020	$33.01	-11.41%
FY 2021	$38.66	+17.09%
FY 2022	$43.00	+11.25%
FY 2023	$45.75	+6.39%
TTM 2024	$46.47	+5.27%

Analysis:

The Coca-Cola Company has demonstrated consistent revenue growth following a decline in FY 2020 due to the global pandemic. The TTM revenue of $46.47 billion marks a 5.27% increase over the previous period, indicating steady recovery and growth. The company’s diversified product portfolio and global presence have contributed to its resilience and ability to capitalize on market opportunities.

b. Profitability

• Net Income (TTM): $10.65 Billion
• Earnings Per Share (EPS, TTM): $2.46
• Profit Margin: 22.92%
• Return on Equity (ROE): 38.77%
• Return on Assets (ROA): 8.65%
• Return on Invested Capital (ROIC): 12.06%

Analysis:

The company’s net income increased by 1.31% YoY, reflecting stable profitability. The profit margin of 22.92% is strong, indicating effective cost management and pricing strategies. High ROE of 38.77% suggests that the company is generating significant profits from shareholders’ equity, while ROA and ROIC indicate efficient utilization of assets and capital.

c. Gross Margin and Operating Margin

• Gross Margin (TTM): 60.53%
• Operating Margin (TTM): 29.73%

Analysis:

Coca-Cola maintains a high gross margin, reflecting strong pricing power and control over production costs. The operating margin of 29.73% indicates efficient operations and effective management of operating expenses.

d. Cash Flow

• Operating Cash Flow (TTM): $11.08 Billion (-0.16% YoY)
• Capital Expenditures (CapEx, TTM): -$2.03 Billion
• Free Cash Flow (FCF, TTM): $9.05 Billion (-4.58% YoY)
• Free Cash Flow Margin: 19.49%
• Free Cash Flow Per Share: $2.09

Analysis:

Operating cash flow remained relatively stable with a slight decrease of 0.16% YoY. Free cash flow decreased by 4.58%, which may be attributed to increased capital expenditures or changes in working capital. The free cash flow margin of 19.49% indicates strong cash generation relative to revenue, providing the company with flexibility for dividends, debt repayment, and strategic investments.

3. Balance Sheet

• Total Assets: $101.20 Billion
• Total Liabilities: $73.79 Billion
• Total Debt: $45.06 Billion
• Cash & Equivalents: $19.00 Billion
• Net Debt Position: – $26.06 Billion
• Net Cash Per Share: – $6.05
• Equity (Book Value): $27.41 Billion
• Debt-to-Equity Ratio: 1.64
• Current Ratio: 1.08
• Quick Ratio: 0.80
• Working Capital: $2.34 Billion

Analysis:

The company has a significant amount of debt, with a debt-to-equity ratio of 1.64, indicating that it uses leverage to finance its operations. The net debt position of -$26.06 billion suggests that total debt exceeds cash reserves. However, the current ratio of 1.08 and quick ratio of 0.80 imply that Coca-Cola has sufficient liquidity to meet its short-term obligations. The company’s strong cash flow generation supports its ability to manage debt levels effectively.

4. Valuation

• Current Stock Price: $70.17
• Price-to-Earnings (PE) Ratio (TTM): 28.53

• Forward PE Ratio: 23.97
• Price-to-Sales (PS) Ratio: 6.52
• Price-to-Book (PB) Ratio: 11.70
• Price-to-Free Cash Flow (P/FCF) Ratio: 33.40
• PEG Ratio: 4.16

Analysis:

• PE Ratios: The TTM PE ratio of 28.53 indicates that the stock is trading at a premium compared to the market average. The forward PE ratio of 23.97 suggests expectations of earnings growth in the future.
• PB Ratio: A PB ratio of 11.70 reflects that the stock is priced significantly above its book value, common for established, high-quality companies.
• PEG Ratio: A PEG ratio of 4.16 may suggest that the stock is overvalued relative to its earnings growth rate.
• P/FCF Ratio: A ratio of 33.40 indicates a premium valuation based on free cash flow.

5. Market Performance

• 52-Week Range: $51.55 – $73.53
• 52-Week Price Change: +27.86%
• Beta: 0.61
• Dividend Yield: 2.77%
• Ex-Dividend Date: September 13, 2024

Analysis:

Coca-Cola’s stock price has increased by 27.86% over the past year, outperforming many defensive sector peers. The beta of 0.61 indicates lower volatility compared to the overall market, making it a potentially attractive option for risk-averse investors. The dividend yield of 2.77% and a history of 62 years of dividend growth highlight the company’s commitment to returning value to shareholders.

6. Financial Health and Risks

a. Liquidity

• Current Ratio: 1.08
• Quick Ratio: 0.80

Analysis:

The current ratio above 1 suggests that Coca-Cola can meet its short-term liabilities with its short-term assets. The quick ratio below 1 indicates that, excluding inventory, the company may face challenges in covering immediate obligations, although this is mitigated by strong cash flows.

b. Leverage

• Debt-to-Equity Ratio: 1.64
• Debt-to-EBITDA Ratio: 2.94
• Interest Coverage Ratio: 8.74

Analysis:

Coca-Cola has a relatively high debt-to-equity ratio, signifying significant use of debt financing. The debt-to-EBITDA ratio of 2.94 indicates manageable debt levels relative to earnings. An interest coverage ratio of 8.74 suggests that the company can comfortably meet its interest obligations.

c. Profitability

• High Profit Margin: At 22.92%, the profit margin reflects strong profitability.
• Return Ratios: High ROE and ROIC demonstrate effective management and efficient use of capital.

d. Operational Risks

• Market Saturation: In mature markets, growth may be limited due to market saturation.
• Commodity Prices: Fluctuations in the prices of raw materials like sugar and aluminum can impact costs.
• Health Trends: Increasing consumer preference for healthier options may affect sales of traditional sugary beverages.

e. Market Risks

• Foreign Exchange Exposure: With a significant portion of revenue from international markets, currency fluctuations can impact financial results.
• Regulatory Risks: Changes in regulations, taxes on sugary drinks, and environmental policies can affect operations.

7. Conclusion

Pros:

• Strong Brand Equity: Coca-Cola is one of the most recognized brands globally, providing a competitive advantage.
• Consistent Profitability: Stable net income and high profit margins reflect effective business operations.
• Dividend Growth: A 62-year history of dividend increases demonstrates a commitment to shareholder returns.
• Global Diversification: Presence in over 200 countries reduces reliance on any single market.

Cons:

• High Valuation Multiples: Elevated PE and PB ratios suggest the stock may be overvalued.
• Debt Levels: High leverage requires careful management to avoid financial strain.
• Changing Consumer Preferences: Shifts toward healthier lifestyles may reduce demand for some of the company’s traditional products.
• Slower Growth: As a mature company, growth rates may be slower compared to emerging companies in the sector.

Disclaimer:

This analysis is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investing in stocks involves risks, including the potential loss of principal. Past performance is not indicative of future results. Investors should conduct their own research or consult a qualified financial advisor before making investment decisions.