Coca Cola Company Stock Analysis

The Coca-Cola Company (NYSE: KO)

Price as of 4/29/2011: $67.46

12 Month Target Estimate: $75 – 80

Trailing P/E Ratio: 13.3

Current Dividend Yield: 2.8%

Recommendation: BUY


The Coca-Cola Company is the world’s largest producer of soft drinks. They manufacture, distribute and market nonalcoholic concentrates and syrups worldwide. The company owns more than 500 brands, and sells products in over 200 countries. Products include sodas, waters (flavored, sparkling and still), energy drinks, juices and teas. The company has been in operation for 125 years, and its brand name is one of the most recognizable in the world.


At $0.86, the past quarter’s earnings came in just about at analysts’ estimates. Earnings were hurt slightly by both the earthquake in Japan (responsible for about a one penny drop in earnings) and the unrest in the middle east. Other challenges which affected earnings were spikes in commodity prices and global currency volatility. As a global company, situations like these will arise is just about every quarter. It is a tribute to the company’s business model that a confluence of events such as these end up being little more than a bump in the road.


The price-to-earnings ratio lows for the past several years has been in the 15 – 25 range, with the PE highs in the range of 20 – 35. With a current PE ratio of 13.3, the stock seems cheap despite sitting near a 52 week price high. It also seems cheap compared to the industry average PE ratio of 22.9 and the PE ratio of its closest comparison PepsiCo (PEP) at 17.6

The stock price is up 30% for the past year and up 7.9% year to date. A move up to a reasonable PE ratio of 16 – 17 would put the stock price in the $75 – 80 range; an 11.2% – 18.6% gain.


The Coca-Cola Company has increased its dividend for forty-nine consecutive years, and there is no reason to think this trend will not continue. 2010’s payout ratio of 35% is far lower than the 50% or so the payout ratio has been for the past ten years.

The current dividend stands at an annualized $1.88 per share, up 6.8% from last year’s $1.76 per share. If the company continues to raise the dividend at this rate for the next five years, it will be paying over $2.90 per share per year.


In 2010, the Coca-Cola Company scored an impressive 42.5% Return On Equity (RoE) and a 19.5% Return on Assets (RoA). Both these numbers were well above the still impressive historical norms of about 30% RoE and 16% RoA, but returns like these are signs that there is a great management team running this company.


The Coca-Cola Company is a respected, well-run company. The current stock price seems low based on the company’s consistent revenue performance and its history of dividend increases. This stock seems to be a low-risk, candidate for a core stock holding which could return you 10-15% gains per year over the next five years.