Company Reports

We award a wide economic moat rating to Coca-Cola and expect its impressive brand portfolio underpinning pricing power and close retailer relations, combined with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

We don’t plan any material changes to our $60 fair value estimate for wide-moat Coca-Cola after digesting its 2023 results, as sales growth of 6% and adjusted EPS of $2.69 matched our estimates. Despite a softening consumer backdrop and intense competition in the beverage aisle, we think Coca-Cola remains well-positioned to capture growth in the coming years thanks to heavy investments in innovations and brands, and deft in-market executions that assert its competitive standing globally. For 2024, we view management’s outlook for mid-single-digit sales growth as reasonable after adjusting for the impact of refranchising but plan to trim our adjusted EPS estimate by a low-single-digit percentage due to worse-than-expected near-term currency headwinds. Our 10-year projections for mid-single-digit sales growth and low-30s average operating margins remain in place.

We award a wide economic moat rating to Coca-Cola and expect its impressive brand portfolio underpinning pricing power and close retailer relations, combined with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

We plan to maintain our $60 fair value estimate for wide-moat Coca Cola after digesting slightly-better-than expected third-quarter results, driven by beverage innovations, brand investments and deft in-market execution. Organic revenue grew 11%, edging our 10% estimate while adjusted EPS growth of 7% matched our expectation. Coke nudged up 2023 organic revenue and adjusted EPS growth guidance ranges to 10%-11% (from 9%-10%) and 7%-8% (from 5%-6%), which we view as achievable, and we are tweaking our own 2023 estimates to align with the improved outlook. Our 10-year projections for mid-single-digit sales growth and low 30s average operating margins remain in place. After a 3% intra-day price pop, shares still trade at a 10% discount to our intrinsic valuation and we suggest long-term investors to consider buying this name.

We award a wide economic moat rating to Coca-Cola and expect its impressive brand portfolio underpinning pricing power and close retailer relations, coupled with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

We plan to raise our $58 fair value estimate for wide-moat Coca Cola by a low-single-digit percentage after digesting better-than expected second-quarter results, driven by beverage innovations and in-market execution in both premium and value offerings globally. Organic revenues grew 11% and adjusted EPS was up 17% (excluding currency impact), both ahead of our estimates (10% and 14%, respectively). Coke nudged up 2023 guidance for organic revenue to 8%-9% (from 7%-8%) and adjusted EPS growth to 5%-6% (from 4%-5%), which we view as achievable, and we plan to update our own 2023 estimates to approximate the new outlook. Our 10-year projections for mid-single-digit sales growth and low 30s average operating margins remain in place. Shares are trading in a range we'd consider fairly valued.

Wide-moat Coca-Cola posted better-than-expected organic revenue growth (12%, versus our 11% forecast) and adjusted EPS ($0.68, versus $0.67) in the first quarter of 2023, reaffirming our view that the firm is well-positioned to continue driving sales and profit expansion through consumer-centric innovations and brand marketing. We are maintaining our $58 fair value estimate after incorporating the latest results in our valuation model, with our projections for mid-single-digit average annual top-line growth over the next 10 years and average operating margins in the low 30s remaining unchanged.

We award a wide economic moat rating to Coca-Cola and expect its impressive brand ensemble underpinning pricing power and close retailer relations, coupled with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

Wide-moat Coca-Cola posted better-than-expected organic revenue growth (15% versus our 12% forecast) in the fourth quarter that reaffirmed our view that the firm is poised to drive sales expansion through digital campaigns and a sharp focus on emerging markets (20% of sales). Adjusted EPS of $0.45 was a touch shy of our $0.47 estimate due to higher interest expenses from the floating rate debt. We are maintaining our $58 fair value estimate after incorporating the latest results in our valuation and view the shares as fairly valued.

Concerns abound as it pertains to inflation and the ultimate consumer response, but we continue to believe wide-moats Coca-Cola and PepsiCo are well positioned to navigate the uncertain landscape. Our confidence in their durable competitive advantage stems from stout brand portfolios, which underpin strong pricing power and close retailer relationships, and from scale benefits due to the expansive global footprint each maintains. This pricing power has been evidenced this year as Coke and Pepsi have realized low-double-digit benefits from price/mix amid cost inflation and currency headwinds, but this has not impeded volumes, and we don’t see this ability to unearth gains in pricing and volumes faltering long-term.

We award a wide economic moat rating to Coca-Cola and expect its impressive brand ensemble underpinning pricing power and close retailer relations, coupled with scale benefits stemming from a massive global system, to reinforce its competitive position in the nonalcoholic beverage market and drive excess investment returns.

We plan to maintain our $58 fair value estimate on wide-moat Coca-Cola’s shares after wading through third-quarter results which reaffirmed our constructive view on the strength of its beverage portfolio. Shares trade near our valuation, and as such, we think investors should refrain from building a position.

Coca-Cola’s ubiquity and brand resonance in the nonalcoholic beverage category has been going strong for over 130 years, and we see structural dynamics that will ensure this persists. Despite competing in a mature industry, the firm is adequately exposed, either directly or indirectly, to growth vectors such as premium water and energy drinks. Moreover, we believe Coke will be able to continue extracting incremental value growth from the carbonated soft drink, or CSD, market.

We think Coke's stellar second-quarter results showcased the pricing power of its stout beverage portfolio. Organic revenue growth clocked in at 16% (12% from price/mix and 4% from concentrate sales), on top of whopping 37% organic revenue growth in the same period a year ago. And even as prices at the shelf have continued to climb (including roughly 8%-10% inflation rate in the U.S. and Europe, per management), demand elasticities remain resilient, further evidencing Coke’s strong brand intangible asset. From our vantage point, the extent to which Coke is prioritizing innovation at the premium and value tier (particularly as it relates to varying pack sizes) should help stymie the threat of ongoing inflationary pressures to volumes.

Coca-Cola’s ubiquity and brand resonance in the nonalcoholic beverage category has been going strong for over 130 years, and we see structural dynamics that will ensure this persists. Despite competing in a mature industry, the firm is adequately exposed, either directly or indirectly, to growth vectors such as premium water and energy drinks. Moreover, we believe Coke will be able to continue extracting incremental value growth from the carbonated soft drink, or CSD, market.

With leading brands and stout cost advantages, we’ve long believed that Coca-Cola (the dominant player in the carbonated soft drink—CSD—space, with nearly 21% value share per Euromonitor) and PepsiCo (the top operator in global savory snacks, with nearly 22% value share, and the second-largest player in the CSD market with 10% share) have carved out wide economic moats. From our vantage point, this edge has manifest in pricing power and negotiating leverage with suppliers, which we think will persist and prove particularly valuable as inflationary headwinds show no signs of diminishing.

We regard Coke’s strategy favorably, as the firm is working to expand its dominant position in carbonated soft drinks, or CSDs, while building a larger presence in emerging high-growth categories. But we also surmise the firm is keen to pivot its mix to align with evolving consumer trends, particularly as it pertains to a growing interest in healthy fare (such as with Coke Zero Sugar), which strikes us as prudent.

Evidencing its pricing power, Coca-Cola’s fourth-quarter results featured impressive 18% organic sales growth (with a 7% benefit from price/mix and 11% from concentrate), particularly when viewed against the 6% gains posted a year ago. Even as mobility restrictions (to stem the spread of COVID-19) plagued its operations in China (with an unquantified volume decline for the quarter), these constraints weren’t broad based, as management suggested both at-home and away-from-home volumes grew in the quarter on a consolidated basis (unquantified). Although the economic backdrop remains quite volatile, we think the firm is poised to withstand the onslaught due to its vast troves of global consumer insights, which should enable it to tailor its mix to evolving trends on a local level.

As the war in Ukraine persists, leading beverage operators are opting to halt their businesses in Russia. In this context, citing the ongoing humanitarian crisis, wide-moat Coca-Cola is suspending its operations in Russia, a decision that follows similar actions by companies across a wide swath of industries. Coke’s exposure in Russia and Ukraine represents between 1% and 2% of revenue and operating income and includes a 21% stake in its regional bottler/distributor. We do not expect Coke’s suspension of Russian operations to result in a change to our $59 fair value estimate, although we will continue to monitor this dynamic situation. We acknowledge that the conflict in Ukraine may increase pre-existing inflationary pressures, which management had estimated as a mid-single-digit headwind to cost of goods sold its recent fiscal 2022 guidance, and thus could pose an incremental challenge for the company. We believe Coke is well-positioned to navigate a heightened inflationary environment given its strong brand, innovation capabilities and marketing support, as well as greater operational flexibility achieved per its experience with the COVID-19 pandemic.

Fourth-quarter results showcased the strength of wide-moat Coca-Cola’s leading brand mix, with organic sales up 9% (reflecting a 10% benefit from price/mix). We recognize this was on top of weak marks a year ago (down 3%), when the firm’s operations (particularly its away-from-home sales) were thwarted by mobility restrictions to curb the spread of COVID-19. However, we think the tide is turning; the fourth quarter marked the first since the pandemic that away-from-home volumes exceeded 2019 levels. And impressively, this hasn’t come at the expense of the firm’s at-home business, where management qualitatively cited continued strength.