Coke KO Report-Runtian Bai 042016

Coke KO Report-Runtian Bai 042016 - Coca-Cola Company(KO...

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Coca-Cola Company (KO) Analysis Report Runtian Bai COCA-COLA COMPANY ANALYST REPORT BUY Model DCF1 (2016) DCF2 (2016) PE Multiple (2016) FY1 PE Multiple (2016) FY2 EV/EBITA Multiple (2016) Average 91.63 67.82 Exhibit8:ValuationSummary EquityValuePerShare 61.29 46.2 46.4 93.6 Consumer Staples: Beverages Price (04/19/2016): $46.61. Target Price: $46-$93. 5-Year High/Low: $49.73, $32.81 Catalysts: Coke is a leading global company headquartered in the USA as a large cap stock. Although there is a small decline in revenue in 2016, till today, its stock price has increased 12.5% since Jan 10, 2016 ($41.42-$46.61), which indicates consumers’ confidence in the company and economy. Coke will buy around $2 BN to $2.5 BN worth of stock in 2016 so stock price will continue to go up. Coke will increase its dividend yield from 3% in 2016. In the valuation models, the estimated equity value per share is in the range of $46 to $93. The EPS prediction has been consistent with analyst consensus. The key economy drivers for Coke’s growth will be consumer’s increasing curiosity to try new flavors, and more people shifting away from coffee to Coke to keep themselves more away during the day at a lower price than coffee and better taste. 1 Financial analysis showed Coke has highest ROIC in the industry in the 40% (more than 2 times of Pepsi’s 14%) range due to the increase in NOPLAT YOY since 2010 and the decrease of Invested Capital YOY from 2010, and also highest profit margin. Pepsi has a higher D/E and current ratio. Pepsi is risker but not more profitable. Coke needs to improve its current ratios and other liquidities. Concerns: Consumers are increasingly looking for healthier beverages, while Coke fails to come up with new ways to make healthier beverages and at the same time to be more profitable for their global business. 2 Investment Recommendation: For the portfolio, the suggestion is a buy since Coke is a top stable company in consumer staples and stock is cheap. Coke has diversified the new tastes and premier products among its competitors. Coke also pays a large dividend currently at 3% and its dividend has always increased year over year. 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2021E Revenue 35,119 46,542 48,017 46,854 45,998 44,294 42,522 40,396 40,800 41,208 41,620 42,036 RevenueConsensus 42,594 38,380 38,687 42,408 OperatingIncome 8,449 10,173 10,779 10,228 9,708 8,728 8,388 7,921 8,010 8,099 8,190 8,281 NetIncome 5,669 7,407 8,040 7,386 7,645 7,351 7,290 7,115 7,176 7,277 7,389 7,382 EPS(Basic) 1.70 1.96 2.08 2.29 2.57 2.61 2.61 EPSConsensus 1.95 2.06 2.24 2.43 Summary($MN) 1 Coke Q1 2016 Earnings Call   
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BUSINESS OVERVIEW (10K) Company Description The Coca-Cola Company (KO) is the world’s largest beverage company. It owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages (soft drinks) but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Coke owns and markets four of the world’s top five nonalcoholic sparkling beverage brands: Coca-Cola, Diet Coke, Fanta and Sprite. Finished beverage products bearing the Coke trademarks, sold in the United States since 1886, are now sold in more than 200 countries. The USA sales is 46% of the revenue and International consists of 54% of the revenue. The company was incorporated in Deleware so state tax is 0%.
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