Skip to Content
Commentary

Coke Still Has Room to Boost Profitability, But Shares Fairly Valued

Cost-savings programs, improved pricing, and bottling divestitures should drive near- and long-term margin expansion at wide-moat Coke, writes Morningstar’s Adam Fleck.

Mentioned:

We don’t expect much change to our $43 per share fair value estimate for  Coca-Cola (KO) after examining the firm’s fourth-quarter results and plans to accelerate its bottling divestitures. Unit case volume growth finished the year strong, with 3% year-over-year gains in the second half of the year versus 1% to 2% in the first half; non-carbonated beverages continued to lead this improvement, climbing 6% in the quarter and 5% for the year. Shipment timing issues and fewer calendar days in this year’s fourth quarter led to Coke’s reported volume falling about 3% in the period, but we believe case volume is a better indicator of underlying demand. That said, the firm’s total reported volume grew 1% in the year, in line with our expectations.

We believe this volume growth, combined with positive pricing, supports our wide-moat rating for Coca-Cola. Price and mix lifted sales about 2% in the quarter and the full year, the strongest annual performance since 2011. We expect continued contribution from this metric at roughly 3% per year, owing to a further push in reduced package sizes (which drive up price per ounce), increased marketing spending, and rising consumer incomes in developing markets.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.