Company Profile (excerpt from Reuters): The Coca-Cola Company, incorporated on September 5, 1919, is a beverage company. The Company owns or licenses and markets non-alcoholic beverage brands, primarily sparkling beverages and a range of still beverages, such as waters, flavored waters and enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, sports drinks, dairy and energy drinks. The Company’s segments include Europe, Middle East and Africa; Latin America; North America; Asia Pacific; Bottling Investments, and Corporate. The Company owns and markets a range of non-alcoholic sparkling beverage brands, including Coca-Cola, Diet Coke, Fanta and Sprite. As of December 31, 2016, the Company owned or licensed and marketed over 500 non-alcoholic beverage brands. The Company markets, manufactures and sells beverage concentrates, which are referred to as beverage bases, and syrups, including fountain syrups (concentrate business or concentrate operations), and finished sparkling and still beverages (finished product business or finished product operations). The Company makes its beverage products available to consumers across the world through its network of Company-owned or -controlled bottling and distribution operations, as well as bottling partners, distributors, wholesalers and retailers.
Downloadable PDF version of this valuation:
ModernGraham Valuation of KO – April 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $198,666,736,888 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.05 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -39.21% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 31.87 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 10.50 | Fail | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.05 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 17.98 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $1.46 |
| MG Growth Estimate | -2.50% |
| MG Value | $5.11 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $21.14 |
| MG Value based on 0% Growth | $12.39 |
| Market Implied Growth Rate | 11.69% |
| Current Price | $46.47 |
| % of Intrinsic Value | 909.65% |
The Coca-Cola Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2015 to an estimated $1.46 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.69% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into The Coca-Cola Co revealed the company was trading above its Graham Number of $13.61. The company pays a dividend of $1.56 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 31.87, which was above the industry average of 27.84. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.79.
The Coca-Cola Co receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$7.79 |
| Graham Number | $13.61 |
| PEmg | 31.87 |
| Current Ratio | 1.05 |
| PB Ratio | 10.50 |
| Current Dividend | $1.56 |
| Dividend Yield | 3.36% |
| Number of Consecutive Years of Dividend Growth | 20 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2018 |
| Total Current Assets | $30,634,000,000 |
| Total Current Liabilities | $29,223,000,000 |
| Long-Term Debt | $25,364,000,000 |
| Total Assets | $83,216,000,000 |
| Intangible Assets | $17,270,000,000 |
| Total Liabilities | $64,158,000,000 |
| Shares Outstanding (Diluted Average) | 4,305,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.07 |
| Dec2018 | $1.50 |
| Dec2017 | $0.29 |
| Dec2016 | $1.49 |
| Dec2015 | $1.67 |
| Dec2014 | $1.60 |
| Dec2013 | $1.90 |
| Dec2012 | $1.97 |
| Dec2011 | $1.85 |
| Dec2010 | $2.53 |
| Dec2009 | $1.47 |
| Dec2008 | $1.25 |
| Dec2007 | $1.29 |
| Dec2006 | $1.08 |
| Dec2005 | $1.02 |
| Dec2004 | $1.00 |
| Dec2003 | $0.89 |
| Dec2002 | $0.62 |
| Dec2001 | $0.80 |
| Dec2000 | $0.44 |
| Dec1999 | $0.49 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $1.46 |
| Dec2018 | $1.20 |
| Dec2017 | $1.17 |
| Dec2016 | $1.65 |
| Dec2015 | $1.75 |
| Dec2014 | $1.85 |
| Dec2013 | $1.96 |
| Dec2012 | $1.93 |
| Dec2011 | $1.84 |
| Dec2010 | $1.73 |
| Dec2009 | $1.29 |
| Dec2008 | $1.18 |
| Dec2007 | $1.11 |
| Dec2006 | $0.99 |
| Dec2005 | $0.92 |
| Dec2004 | $0.83 |
| Dec2003 | $0.71 |
Recommended Reading:
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
