Tag: Coca Cola

  • Is Coca Cola Overvalued – Trick Or Treat

    Is Coca Cola Overvalued – Trick Or Treat

    Is Coca Cola Overvalued
    Coca-Cola has performed very well in 2019. The stock isn’t cheap but also, not overvalued. The increasing margin and investors seeking yield couldn’t be a problem for the company to continue great performing. 

    The question Is Coca Cola overvalued could be a trick. Why do we think so? If we take a cash flow at a consideration we can see that Coca Cola is trading at 24.4 times operating cash flow and 31.3 times earnings. Further, the forward price-to-earnings ratio is at 24.6%. and the latest price is $54.69 (data from January 3th, source Yahoo Finance). Although, the company is not expensive. 

    Further, if you have in your mind that most government bonds are trading under 0% yield, the negative interest rate in the EU, currently inflation is low, KO that provides a 2.9% yield, you must understand that it isn’t expensive.

    Of course, it will be better if the stock can provide a higher yield but for that, we have to wait for additional dividend increases. On April 9, the stock traded at $55.77, the current price is at $54.69 but we all have to admit it isn’t a sharp decline in the stock price. Coca Cola management may reinvest the company’s operating cash in capital expenditures (CapEx) to get, improve, and keep the property, improve technology, or equipment. Further, the company can reinvest in development such as innovation to improve the product portfolio, marketing or M&A to maintain the business like it was in the past 20 years or more.

    Also, Coca Cola can use the operating cash to further improve profitability. That would influence its P/E ratio.
    Having all these indicators in mind it is easy to conclude that Coca Cola isn’t overvalued stock.

    It has a high debt

    Coca Cola has raised debt levels. The company has a slightly low liquidity position as the current ratio is at 0.92. The sustainable level should be 1.00 but the current debt levels are not something to be worried about. Boosted debt came from the fast increase of long-term debt and falling sales. But as we said, the company plans to improve sales and operating cash flow will likely grow. That could easily cover the debt. Moreover, the company’s bonds are doing very well. 

    Why do some investors think that Coca Cola is overvalued?

    Some investors avoided this stock due to its valuation. But try to be honest, it isn’t expensive. The company is paying a stable dividend yield and, according to its statements, it plans to have strong sales in the future. Coca Cola isn’t in the phase of low operating cash flow. Experts’ opinion is the stock hasn’t sell signal. It is contrary, with 31.3 earnings it has “hold” or even “buy” signal. Moreover, some estimations and predictions show that stock may hit over $60 (close to $65) this year. Well, Coca-Cola is a solid dividend-paying stock and it will likely continue to produce stable profit for its shareholders.

    The profitability of the company

    Let’s see is Coca Cola overvalued. Over the last four years, the company had a total revenue drop of $10 billion to $34.3 billion. Operating margin was improved by 560 points up to almost 29% and income dropped to about $10 billion which is a difference of just $400 million. The good sign is that the company increased cash by almost $10 billion from its operations while dividend payments hit a new record of $6.74 billion. 

    This year, Coca Cola has got back $3.4 billion through dividends and distributed stock worth $233 million. Yes, it is lower than for the same period last year due to several factors and the dividend increase of 3% may not be so visible. But the stock has had a great play in 2019 with a return of over 16%. So, what do you think, is Coca Cola overvalued? We think it isn’t. The company has a great product portfolio that could boost sales. So, KO could be one of the best investments in the next year since, as we can see, there is still a lot of potentials. Maybe the better question could be is Coca Cola undervalued rather that is Coca Cola overvalued stock. 

    Coca Cola through the history

    After 133 years of existing Coca Cola isn’t a woman-body-shaped-bottle. More about the company you can find in its fresh statements updated for Q3 earnings result for 2019. 

    The Coca-Cola Company is an American corporation established in 1892. It is primarily recognized as a producer of a sweetened carbonated beverage. It is a global brand not only the US trademark. The company is also focused on producing and sells soft and citrus drinks. Its product portfolio consists of more than 2,800 products available all over the world. That makes it one of the largest beverage producer and seller in the world and, also, one of the biggest corporations in the US. The company is headquartered in Atlanta, Georgia.

    Almost 55% of its sales come from carbonated soft drinks. The rest 45% goes to juice, dairy, tea, coffee, etc. The interesting part is that Coca Cola is a market leader in almost all of these areas selling its products through over 28 million customer stores.

    Speaking about its stock, Coca Cola could be everything but not overvalued. Moreover, it is a growing brand after 133 years. And the company still has great ambitions to meet consumers’ demands. Respect.

    And don’t be worried if this famous producer is able to meet them. Despite the increasing competition, the company has transformed into an asset-light company. It manages to improve supply chains and modernize its packagings, the concentration of sugar and modern tastes. 

    Don’t ask is Coca Cola overvalued. It isn’t.

    Bottom line

    Coca Cola is consumer staples stocks. It provides goods that people need on a daily basis. That fact makes it an excellent investment in practically every economic condition exceptionally winning during economic slowdowns. People will always need these products no matter what economic or financial status is or if there is inflation or market downturns. The whole industry’s total return in 2019 was 27.3%. Compare this data with the 12-year average annual return of 10.4% and you will understand why it is still a good investment choice. Yes, it is 3% points below the S&P 500. Nevertheless, if the market gets rough, and especially if we will face the market correction, this industry will shine.

    In the face of this context, Coca Cola is one of the best consumer staples stocks to buy in 2020. This pick should be proficient if the market is turbulence in 2020.

    So, KO could be a good addition to investors’ portfolios.

  • Costa Coffee sold to Coca Cola!

    Costa Coffee sold to Coca Cola!

    1 min read

    Costa Coffee sold to Coca Cola!

    Whitbread, a leisure group taking in coffee shops and hotels, said earlier this year it would spin off Costa Coffee and list it as a separate entity, following pressure from activist investor Elliott.

    Whitbread has agreed to sell Britain’s biggest coffee chain to Coca-Cola in a £3.9bn deal. On Friday the company said a sale of the business is now “in the best interests of shareholders”.

    Whitbread’s stock rose more than 18% in early trading on Friday.

    Leisure group Whitbread says sale ‘in best interests of shareholders’.

    Profit of this deal will be used to pay down debt and increase the pension fund. Whitbread said it intends to return a majority of net cash proceeds to shareholders.

    Earlier this year it was reported that Whitbread has been got close to a potential buyout of Costa Coffee.

    The company said the sale of the coffee chain will allow it to focus on its Premier Inn hotels business.

    Hospitality group Whitbread is cutting hundreds of management roles, two months after confirming plans to spin off its Costa Coffee business, The UK Independent revealed earlier in July.

    The company will let at least 250 managers go as part of a restructuring of its restaurant business, which is held under the Premier Inn brand.

    Employees were told about the redundancies but were given no further detail at that time.

    But on Friday everything became clear.

    Workers have been concerned that job cuts were appearing since the Costa spin-off was announced, and feel that the process has not been handled well by Whitbread, according to a source close to the company.

    Chief executive Alison Brittain said: “This transaction is great news for shareholders as it recognizes the strategic value we have developed in the Costa brand and its international growth potential, and accelerates the realization of value for shareholders in cash. This combination will ensure new product development, continued growth in the UK and more rapid expansion overseas.”

    Whitbread bought Costa Coffee, which is now the UK’s biggest coffee chain, for just ÂŁ19m in 1995. when it had only 39 shops and now has more than 2,400 UK coffee shops, as well as some 1,400 outlets in 31 overseas markets. Costa Express has 8,237 vending machines worldwide.

    Costa Coffee sold to Coca Cola! 2For Coca-Cola, the transaction represents a leap into the global coffee market, where it has little presence, allowing it to diversify away from fizzy and sugary drinks, which have declined in popularity among increasingly health-conscious consumers.

    Coca-Cola chief executive James Quincey told investors on a conference call that Costa was “a winning company that can go global”.

    He admits that retail sales were a new area for Coca-Cola, but said Costa already had “a strong management team” and that Coca-Cola intended to “make it attractive for them to stay”

    Think the Coca-Cola dividend, its stocks provide a remarkable wealth to investors like Warren Buffett.

    Risk Disclosure (read carefully!)