Coca-Cola described its 2020 vision in 2009, and since then it has been making steady progress in achieving its goals. The company hopes to double the amount of Coca-Cola beverages consumed around the world and double system revenue in that time frame. While we believe volume growth during the next decade will be led by emerging markets, we also think Coca-Cola's sales in mature geographies will likewise expand as the company continues to broaden its portfolio of still beverages.
Coca-Cola's vast distribution network and powerhouse brands are second to none and have helped the company create one of the widest economic moats in our consumer defensive coverage universe. We believe the firm's wide moat justifies an above-average multiple and believe that the shares are slightly undervalued compared with our new $45 fair value estimate.
|Economic Moat||Fair value||Stewardship Rating|
def. consum. goed.
KEY INVESTMENT CONSIDERATIONS
- We think Coke's vast direct distribution network and prospects for emerging-market growth mean the stock should trade at an above-industry-average multiple.
- Coke and its bottling partners plan to invest billions in the faster-growing markets of China, Russia, Africa, Mexico, and Brazil. These investments should set the stage for a multidecade growth trajectory in these burgeoning economies.
- While Coke's acquisition of CCE's North American bottling business has resulted in lower returns on invested capital, we believe the move has enabled Coke to be more nimble in meeting customer demands.
- Coca-Cola's distribution network spans more than 200 countries. This infrastructure would be extremely difficult and costly for new entrants to duplicate.
- Coke has ample runway for growth in emerging markets where per capita consumption is relatively low.
- The company's acquisition of its North American bottling and distribution activities should give the firm closer relationships with its retailers and prevent PepsiCo from gaining an edge in a fiercely competitive market.
- Coca-Cola products represent roughly 3% of the estimated 55 billion beverages that are served every day around the world, thereby creating a global familiarity with its brands.
- The Coca-Cola Freestyle fountain machine has the opportunity to profitably increase company revenue from the highly sticky quick-service and fast-casual restaurant channels.
- Coke's revenue base is relatively undiversified compared with PepsiCo's; Pepsi's snack business has proved quite resilient during economic downturns.
- Despite the popularity of Coke's flagship brand, cola consumption has been declining in the U.S.
- Soft drink bottling operations are capital-intensive and lower-margin than Coke's core concentrate and syrup business. Consequently, Coke's profitability could be hurt by its acquisition of CCE's North American assets.
- Governments may look to increase taxes on sugary drinks, thereby stunting Coke's volume growth trajectory.
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