Coca Cola Company
Executive Summary
The Coca-Cola Company (Coca-Cola) is a manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups. The Company manufactures beverage
concentrates and syrups and, in certain instances, finished beverages, which it sells to
bottling and canning operations, fountain wholesalers and some fountain retailers.
Finished beverage products bearing the Company's trademarks, sold in the United States
since 1886, are now sold in nearly 200 countries. Coca-Cola also markets and distributes
juice and juice-drink products. In addition, the Company has ownership interests in
numerous bottling and canning operations. For the fiscal year ended 12/31/02, revenues
rose 12% to $19.56 billion. Net income before accounting change remained flat at $3.98
billion. Revenues reflect an increase in gallon shipments and price increases in selected
countries. As a group, we have decided to buy Coca cola, because of its superior free
cash flow generating capabilities, its extremely low level of capital intensity, and its
ability to grow steadily while entering new markets in addition to its cyclical economic
resistance. Precise buy order information can be viewed on the following page.
UConn Foundation Student Managed Fund
Trade Form
Presentation Date: 04/02/03
Covering managers: Ellen Huebner
Anticipated date for trade: 03/28/03
Stock Name: Coca Cola CO
Ticker: KO
Decision: Buy
Number of shares: approximately
Approximate cash value: $
Limits:
Stop Loss: at or 30% of current price
Appreciation review price target: $
Vote results
for: 11 against: 0 Abstain:
Trade executed by: Professor Chinmoy Ghosh
Trade manager present: Javed Singha
University of Connecticut - Student Managed Fund
Stock Analysis Report
April 2, 2003
Coca Cola Co NYSE (KO)
Large Cap: $100billion
Industry: Consumer Discretionary
Sector:
Alcoholic Free Beverages
Valueline: Timeliness: 3
Safety:
1 New
Technical: 4 Lowered
Stock Scouter Rating:
Business Summary
The Coca Cola Company is the world’s largest beverage company. It distributes major brands
through bottlers around the world including: Coca-Cola, Diet Coke, Sprite, Barq’s, Mr. PiBB, Fanta,
Fresca, Dasani, Evian, Dannone, Powerade, Minute Maid, and others. Business outside of North America
comprised 62% of net sales, and 76% of profits in 2001. Coca Cola has 38,000 employees, 366,000
stockholders, of which Berkshire Hathaway owns 8.1%.
For 2003, Coca-Cola’s business continues to grow at approximately 2-3% in America, and 5-6%
abroad. Although Coke Classic has been weaker, recent marketing efforts and the introduction of new
Coke flavors have been implemented to increase demand. Coca-Cola’s Dasani led water sales in 2002,
which were up by 50%.
The company’s long-term objectives include a unit case volume growth of 5-6% a year, and an
earning per share growth of 11-12%. Since the majority of Coca-Cola’s growth will be outside of North
America, mainly in China and India, these objectives appear to be more than reasonable. Coca-cola’s
shares should appreciate on the average over the next 3-5 years, and the current stock price is the most
reasonable it has been in years, providing the fund with an opportune time to buy such a solid company.
Financial Data/ Ratio Comparison
For the ratio analysis we compared the stock to the industry, sector, S&P 500, its main competitor
PepsiCo.Inc (PEP) and one other smaller competitor Hansen Natural Corp (HANS).
Valuation
Ratios
P/E Ratio
(TTM)
P/E High Last 5 Yrs.
P/E Low Last 5 Yrs.
Beta
Price to
Sales
(TTM)
Price to
Book
(MRQ)
KO
PEP
HANS
Industry
Sector
S&P 500
25.44
21.53
14.41*
23.98
21.05
22.55
93.75
44.84
28.66
73.84
48.24
49.93
24.13
20.68
8.37
22.41
18.66
16.62
0.4
0.76
0.77
0.54
0.35
1
5.17
2.84
0.45*
3.86
2.48
2.96
8.53
7.39
1.51
7.53
7.28
4.27
Price to
Tangible
Book
(MRQ)
Price to
Cash Flow
(TTM)
Price to
Free Cash
Flow
(TTM)
% Owned
Institutions
12.2
16.84
3.91
14.43
14.54
7.18
19.65
16.14
10.6
17.03
15.53
15.78
53.1
33.22
7.84
42.95
33.02
27.36
56.53
65.64
13.82
55.74
53.02
61.47
We noticed a few interesting things from the valuation ratios. Firstly Coca Cola’s P/E is in line
with its competitors and the industry. We can also see that Coca Cola is trading near its 5 year low P/E this
could indicate a bottom price. Also we can see that it’s five year high P/E is nearly 4 times what its current
P/E ratio, this indicates a great upward potential for the company. Although Coca Cola has a higher price to
free cash flow, the two company’s price to free cash flow is converging. Coca Cola’s price to free cash
flow has fallen by almost 10 points while Pepsi’s has increased by 6 points in the last 2 months. We also
see a large percentage of institutional ownership this is also good because there are many professional
investors constantly watching to make sure the company is doing the right things today, and making
strategic plans for the future.
Dividends
Dividend
Yield
Dividend
Yield - 5
Year Avg.
Dividend 5
Year
Growth
Rate
Payout
Ratio
(TTM)
KO
PEP
HANS
Industry
Sector
S&P 500
2.16
1.5
NA
1.77
2.59
2.25
1.3
1.3
0
1.26
1.96
1.39
7.39
3.96
NM
4.22
5.12
1.24
49.94
31.55
0
39.97
39.62
27.38
Coca Cola has the highest dividend yield compared to its main competitors and is in line with the
S&P 500. We also picked Coca Cola because we believe the elimination of double taxation on stocks is a
real possibility, and that this will benefit dividend paying stocks. Coca Cola has been one of the company
that has constantly paid and increased it’s dividend in the past 5 years. We believe that many investors will
move towards dividend paying stocks, since the internet Bubble. Investors want to see real returns not just
paper returns and this is exactly what a dividend paying stock like Coca Cola Offers.
Growth
Rates(%)
Sales
(MRQ) vs
Qtr. 1 Yr.
Ago
Sales
(TTM) vs
TTM 1 Yr.
Ago
Sales - 5
Yr. Growth
Rate
EPS
(MRQ) vs
Qtr. 1 Yr.
Ago
KO
PEP
HANS
Industry
Sector
S&P 500
13.14
7.05
-32.12*
10.05
6.44
8.07
11.51
6.81
-0.25*
9.24
7.26
4.1
0.73
3.72
21.01
2.57
3.53
9.87
-20.65
23.45
-68.75*
-3.38
23.76
25.05
EPS
(TTM) vs
TTM 1 Yr.
Ago
EPS - 5
Yr. Growth
Rate
0.06
25.88
0.34*
10.93
30.53
23.7
-0.5
14.27
49.68
6.5
9.14
10.6
The growth rates do not look favorable for Coca Cola. There sales have been very strong recently
but there earnings per share had dropped last year. This is not of much concern as we feel the company has
taken measures to fix this. Also its poor earnings last year have decreased the price of the stock to a price
that we feel will add our portfolio value.
Financial
Strength
Quick
Ratio
(MRQ)
Current
Ratio
(MRQ)
LT Debt to
Equity
(MRQ)
Total Debt
to Equity
(MRQ)
Interest
Coverage
(TTM)
KO
PEP
HANS
Industry
Sector
S&P 500
0.61
0.72
1.18
0.65
0.67
1.17
1
1.06
3.16
1.02
1.21
1.68
0.23
0.24
0.17
0.45
1.35
0.71
0.45
0.3
0.18
0.61
1.64
0.94
27.43
26.57
20.61
26.64
16
13.53
Coca Cola has reasonable quick and current ratios compared to its competitors. Coca Cola has
great long term debt to equity, and total debt to equity ratios compared to competitors. Coca Cola hold very
little long term debt which means it is financed by the currently low rates. It also holds a great deal of this
cheap debt to its total equity.
Profitability
Ratios (%)
Gross
Margin
(TTM)
Gross
Margin - 5
Yr. Avg.
EBITD
Margin
(TTM)
EBITD - 5
Yr. Avg.
Operating
Margin
(TTM)
Operating
Margin - 5
Yr. Avg.
Pre-Tax
Margin
(TTM)
Pre-Tax
Margin - 5
Yr. Avg.
Net Profit
Margin
(TTM)
Net Profit
Margin - 5
Yr. Avg.
KO
PEP
HANS
Industry
Sector
S&P 500
63.68
54.22
43.29
58.04
45.95
47.42
66.55
55.96
45.56
60.16
46.53
47.84
33.88
19.39
5.86
26.65
21.59
20.64
29.9
16.43
8.63
23.34
19.74
22.09
27.9
18.84
5.7
22.61
18.17
18.59
25.34
15.7
8.1
19.9
16.03
18.33
28.11
19.39
5.43
22.59
16.76
16.65
25.49
16.1
7.48
19.72
14.97
17.45
20.32
13.19
3.29*
15.99
11.38
11.92
17.39
10.96
4.78
13.42
9.75
11.47
Effective
Tax Rate
(TTM)
Effective
Tax Rate - 5
Yr. Avg.
27.7
31.94
40.44
30.13
32.92
31.53
32.37
30.32
31.95
31.65
35.78
35.18
From the profitability ratios it can be seen that Coca Cola is more profitable than PepsiCo. and
much more so than the Industry, Sector and S&P.
Management
Effectiveness
(%)
Return On
Assets (TTM)
Return On
Assets - 5 Yr.
Avg.
Return On
Investment
(TTM)
Return On
Investment - 5
Yr. Avg.
Return On
Equity (TTM)
Return On
Equity - 5 Yr.
Avg.
KO
PEP
HANS
Industry
Sector
S&P 500
16.4
14.31
7.55*
14.27
11.33
6.38
15.43
12.45
12.49
12.9
10.69
7.59
24.83
19.13
8.99*
20.6
16.46
10.31
26.52
16.69
16.58
20.4
16.07
12.2
35.09
35.42
11.40*
33.4
34.53
18.53
33.63
34.44
20.52
31.46
31.77
20.85
The management effectiveness can be seen immediately as Coca Cola dominates the S&P in all
ratios. Coca Cola is also higher or on line with PepsiCo. for management effectiveness making it a cash
machine.
Efficiency
Revenue/Employee
(TTM)
Net
Income/Employee
(TTM)
KO
PEP
HANS
Industry
Sector
S&P 500
349,357
176,845
885,077*
269,963
359,524
481,424
71,000
23,331
29,154*
47,042
39,794
75,447
Receivable
Turnover (TTM)
9.34
9.87
15.51*
9.74
11.6
9.28
Inventory Turnover
(TTM)
5.66
8.07
5.03
7.31
6.76
11.04
Asset Turnover
(TTM)
0.81
1.09
2.29*
0.92
1.13
0.95
Although profitability ratios favor Coca Cola it seems to be less efficient than PepsiCo. Even with
this it is still average with the S&P. Efficiency is something that can be improved easier then some other
parts of the business.
Chart:
Recent News:
Morningstar.com
10 Companies with Super-Wide Moats
Wednesday March 19, 7:00 am ET
By Mark A. Sellers
What makes a company great? It's simple: a moat around its core business.
In our monthly newsletter, Morningstar StockInvestor, we track a watch list of 50 such
companies called the Bellwether 50. These companies have large competitive advantages
and are typically found in mature, stable industries such as data processing, health care,
and consumer products. We've broken the components of an economic moat into four
main categories. Companies possessing one or more of these traits typically generate high
returns on capital and are awarded high price/earnings ratios by the market.
ADVERTISEMENT
1. Being the lowest-cost producer in the industry
2. Having high customer switching costs
3. Owning valuable intangible assets such as patents or trademarks
4. Benefiting from the network effect
That said, our moat ratings are more of an art than an exact science. No specific financial
ratios or footnotes in a 10-K filing will tell us whether a company has a wide moat. For
that reason, we classify moats into three broad categories (wide, narrow, and no moat),
rather than, say, on a scale of one to 10. To quote Warren Buffett, it's better to be
approximately right than exactly wrong.
Given this, there are shades of gray within the moat ratings. For example, not all widemoat companies are created equal. Some companies sit right on the border between a
wide moat or a narrow moat. We spend a lot of time thinking about these companies
because the moat rating is one component of our star ratings and fair value estimates. A
wide moat is also required for inclusion in the Bellwether 50.
On the other hand, there are some companies with such obvious competitive advantages
it doesn't take any deliberation at all to assign them wide-moat ratings. These companies
are exceedingly rare; there are probably not more than a handful of them out of the 8,000
publicly traded firms in our database.
If we had a fourth size of moat rating, called "Super Wide," these 10 companies would
almost certainly fall into it.
1. Wal-Mart (NYSE:WMT - News)
Wal-Mart is the low-cost grocer--it can charge 15% less for food than traditional grocery
stores because of its distribution efficiency and lower labor costs.
2. Berkshire Hathaway (NYSE:BRKa - News)
Because of its financial strength, Berkshire has access to capital at a lower cost than any
other company on the planet, which is just one of its many competitive advantages.
3. Coca-Cola (NYSE:KO - News)
We like many aspects of Coca-Cola, including its powerful brands, marketing might, and
well-established global-distribution systems.
Reuters
RPT-Coca Cola closes Thai warehouse in security alert
Monday March 24, 4:09 am ET
(Refiles to reformat)
BANGKOK, March 24 (Reuters) - A bottler for Coca Cola Ltd (NYSE:KO - News) has
temporarily shut a warehouse in the predominantly Muslim south of Thailand after
protests against the U.S.-led war in Iraq and American branded products, the company
said on Monday.
Coca Cola spokeswoman Krobkaew Panyarachun told Reuters the bottler, Haad Thip Plc
(SET:HTC.BK - News), suspended operations at the warehouse in Yala, 1,400 km (875
miles) south of Bangkok, last week because of security concerns.
"This precautionary measure was taken to protect the safety and security of our
employees in the Yala area," Krobkaew said. Coke's bottling partners own and run more
than 80 warehouses and seven plants across the country, employing more than 11,000
Thais.
The Yala facility is one of 21 warehouses owned by Haad Thip in southern Thailand,
which is home to most of the country's six million Muslims, who form about 10 percent
of its population. Thailand, a close ally of the United States on most issues, has
maintained cordial relations with Baghdad in recent months and has said it hopes the war
in Iraq will be ended swiftly to minimise civilian casualties.
Thailand has seen sporadic anti-war demonstrations with calls for a boycott of American
goods, but the rallies have been fairly small compared with those in neighbouring
Malaysia or Indonesia, which both have Muslim majorities.
A spokeswoman for the local bottler of Pepsi Cola Inc (NYSE:PEP - News), Serm Suk
Plc (SET:SSC.BK - News), told Reuters it would not close its warehouses in southern
Thailand because security was already tight.
"We don't expect any violence at our facilities," Serm Suk public relations manager
Prangmee Chaipidej said.
Models:
Risk Free Rate:
3.8%
S&P500 (10 year average return, rm):
Beta:
7.930%
.7
1. DDM Model
k=rf +β(rm-rf): 6.691
Earnings 1993: .72
Earnings 2002: 1.77
ge: (1.77/0.72)^(1/9)-1= 10.85%
Average ROE: 36.25% (4 year average)
Average Retention: 1-[(.174+.213+.193+.20)/4] = 80.50%
gr: ROE*retention ration (b)=.3625 *.805=29.38%
Average g= (.1085+.2938)/2=20.11%
2). Multistage Growth Model
Is not necessary since this is a mature company growth will continue
to be steady.
3). No Growth
Po = Eo/k = 1.77/0.1085 = $16.31
4) P/E Model
Avg P/E ratio 29
Expected EPS (VLIS)= $1.92
5-Year Horizon: 2.55
P/E Ratio: 22
Projected high price for the next 5 years: $2.55 * 22 = $56.10
Lowest price in the last 3 years: $42.90
Current Price: $39.5
5. Valuepro.net
Intrinsic Value
Growth Rate
Risk Free Rate
52.96
9%
3.8
WACC
5.94%
6. Value line Model
DOV: Long Term Debt + Shareholder Equity:
14800 (million)
Cash Flow Growth Estimate:
9%
Common Shares Outstanding:
2475 (million).
Average Annual P/E Ratio:
29
Return on Total Capital:
30%
The Future Price: 14800* 1.09^10 / 2475 * .3 * 29 =
$123.16
(Discount the future price at 15% for n=10) =
$30.46
This means that we are overpaying for Coca-Colanow using conservative estimates, but
considering that Coca-Cola usually trades at a much higher PE level than at current,
coupled with growth expectations and historical performance, we are comfortable with
this decision.
Officers
FY2001 Compensation
Pay Exer
-----------------------------------------------------------------------Douglas Daft, 58
Chairman, CEO
$53.1M
$2.0M
Steven Heyer, 49
Pres, COO
10.5M -Gary Fayard, 49
CFO, Exec. VP
--Brian Dyson, 66
Vice Chairman, COO 1.6M -Deval Patrick, 45
Exec. VP, Gen. Counsel, Sec. 10.4M --
Date Who Shares
Transaction
ADVERTISEMENT2003-03-20
DUNN, JEFFREY T.
Executive Vice President
3,603 Disposition (Non Open Market) at $41.46 - $41.47
per share.
(Value of about $149,000)
2003-03-20 DUNN, JEFFREY T.
Executive Vice President
6,000 Option Exercise at $21.906 per share.
(Cost of $131,436)
2002-12-12 TUGGLE, CLYDE C.
Vice President 141
Statement of Ownership
2002-11-12 ALLAN, ALEXANDER R.C.
Executive Vice President
5,000 Purchase at $45.08 per share.
(Cost of $225,400)
2002-09-23 ALLEN, HERBERT A.
Director
*5,600 Sale at $47.38 per share.
(Proceeds of $265,328)
2002-08-06 OREFFICE, PAUL F.
Director
*1,000 Sale at $48.81 - $48.85 per share.
(Proceeds of about $49,000)
2002-08-05 2002-08-08 OREFFICE, PAUL F.
Director
3,000 Sale at $49.72 - $50.1 per share.
(Proceeds of about $150,000)
2002-07-30 CUMMINGS, ALEXANDER B.
Executive Vice President
2,060 Purchase at $47.84 per share.
(Cost of $98,550)
2002-05-02 WARE, CARL
Executive Vice President
40,306 Option Exercise at $21.906 per share.
(Cost of $882,943)
2002-05-02 WARE, CARL
Executive Vice President
40,306 Sale at $57.34 per share.
(Proceeds of $2,311,146)
2002-05-01 NARDELLI, ROBERT L.
Director
*1,000 Purchase at $56.96 per share.
(Cost of $56,960)
2002-04-17 DILLER, BARRY
Director
1,000 Statement of Ownership
2002-04-05 JONES, STEPHEN C.
Senior Vice President 4,000 Option Exercise at $20.562 per share.
(Cost of $82,248)
2002-03-28 OREFFICE, PAUL F.
Director
4,320 Disposition (Non Open Market)
2002-03-06 DUNN, JEFFREY T.
Executive Vice President
10,175 Disposition (Non Open Market)
2002-02-28 MINNICK, MARY E
Executive Vice President
2,572 Disposition (Non Open Market) at $47.96 per share.
(Value of $123,353)
2002-02-21 WARE, CARL
Executive Vice President
3,839 Disposition (Non Open Market) at $46.87 per share.
(Value of $179,933)
2002-02-20 DUNN, JEFFREY T.
Executive Vice President
2,953 Disposition (Non Open Market) at $46.13 - $46.15
per share.
(Value of about $136,000)