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

We don’t expect much change to our $43 per share fair value estimate for

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.

In addition, adjusted full-year operating margins of 23.4% were in line with our expectations, as the firm maintained or improved profitability in each segment. Total margins fell primarily due to the mix impact of lower-margin North America (a function of Coke owning its bottling and distribution assets in the U.S.) posting the strongest full-year growth. Nonetheless, we expect cost-savings programs, improved pricing, and bottling divestitures to drive near- and long-term margin expansion, and management’s target for 2016 operating earnings growth to outpace organic revenue gains buoys this thinking.

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