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Coca-Cola Co KO

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Morningstar’s Analysis

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Rebound in Full Swing as Coke Reports Blowout Quarter; Shares Fairly Valued Despite FVE Raise

Analyst Note

| Nicholas Johnson, CFA |

Wide-moat Coca-Cola’s stock had started to crescendo in the weeks leading up to its second-quarter earnings report, suggesting that investors had finally shrugged off the issues (like its tax dispute with the IRS) that had undermined its valuation earlier in the year. To provide grist for the bulls’ theses, the firm reported a knockout quarter, with sales and earnings ahead of FactSet consensus. While the comps the firm faced were undoubtedly soft, commercial momentum and management’s increasing visibility into the contours of the economic recovery manifested in increased top-line guidance for the year (12%-14% organic growth versus high single digits previously). We plan to raise our fair value estimate to $58 from $55 to reflect time value and increased guidance, partially offset by higher taxes as we incorporate Morningstar’s probability-weighted expectation that the U.S. statutory rate will rise to 26%. This does not contemplate structural changes that could ensue from Coca-Cola’s current tax litigation, but our view remains that this situation will take a while to resolve, and the worst possible outcome is unlikely. With shares rallying and risks appearing balanced, we don’t see a compelling margin of safety currently.

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Company Profile

Business Description

Coca-Cola is the largest nonalcoholic beverage entity in the world, owning and marketing some of the leading carbonated beverage brands, such as Coke, Fanta, and Sprite, as well as nonsparkling brands, such as Minute Maid, Georgia Coffee, Costa, and Glaceau. Operationally, the firm focuses its manufacturing efforts early in the supply chain, making the concentrate (or beverage bases) for its drinks that are then processed and distributed by its network of more than 100 bottlers. Concentrate operations represent roughly 85% of the company's unit case volume. The firm generates most of its revenue internationally, with countries like Mexico, Brazil, and Japan being key markets outside of the U.S.

One Coca-Cola Plaza
Atlanta, GA, 30313
T +1 404 676-2121
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Slow Growth
Employees 80,300