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Coca-Cola (NYSE:KO) has been an established beverage company for decades, heck for more than a century even. Investors from 30 or 40 years ago have made a killing on their investments, especially after dividends and stock splits. This isn't to say other companies haven't provided similar returns to Coke over the years. Names like McDonald's (NYSE:MCD), Wal-Mart (NYSE:WMT), and Disney (NYSE:DIS) are just a few companies that have lined investors pockets over the years. The question remains, however: Can today's Coke investors get the same treatment as those investors 40 years ago? Lets look at the company at a more in-depth level to find out if the fundamentals are still as bright.

Before digging through any of the fundamentals, lets look at the charts. Below I'll show the three-year chart and the one-year chart. Both with use the RSI and MACD readings and three different simple moving averages. The three-year chart will use the 50-day, 100-day and 200-day simple moving averages. The one-year chart will use the 20-day, 50-day, and 200-day simple moving averages. Below, the charts:

Coca-Cola Three-Year Chart

Click to enlarge images.

Source: Stockcharts.com.

As you can see, Coke has had a nice upward trending chart for most of the three year time period. For the last half of 2011, it appeared to be stuck in a channel, but finally broke out to the upside in March 2012 before topping in August around $40 per share. Since topping, however, it appears Coke is again stuck in a channel between $36 and $38. I expect this to eventually break out to the upside, just like the previous channel. For a closer look at the more recent price action, we'll examine the one-year chart.

Coca-Cola One-Year Chart

Source: Stockcharts.com.

As you can see on the chart above, Coke began trading strongly to the upside in March, when it rallied hard off of the 50-day simple moving, then around $33.50. The 50-day SMA continued to support Coke all the way up to the top, which was around $40 in the beginning of August. Since then, however, Coke has had a hard time gaining traction, violating its long-term support, the 200-day SMA. Though early, it appears it is again finding support from its 50-day SMA, (which is currently below the 200-day SMA).

Now we can look at Coca-Cola's recent growth. To do so, we'll look at the income statement. More specifically, we'll be focusing on revenue and earnings per share growth over six fiscal years: the previous three years (2009-11), the current year (2012), and the next two year future estimates (2013-14). Below are the results:

Revenue (in millions)

Year

Revenues

Change ($)

Change (%)

2009

30,990

-954

(3%)

2010

35,119

+4,129

13.33%

2011

46,542

+11,423

32.5%

2012*

48,100

+1,558

3.35%

2013*

50,600

+2,500

5.2%

2014*

53,300

+2,700

5.33%

(*) = Indicates these figures are derives based off of future estimates.

When looking at the figures above, it certainly appears that revenues will slow quite significantly over the next three years (including 2012). While >5% growth is good for a matured company like Coke, it certainly would be nice to see faster growth than that. Of course, these are based on estimates -- but assuming it turns out to be right, hopefully we can expect more in the distant future.

Earnings per Share (EPS)

Year

EPS

Change ($)

Change (%)

2009

1.52

+.22

16.9%

2010

1.55

+.03

2%

2011

1.87

+.32

20.6%

2012*

2.00

+.13

6.95%

2013*

2.17

+.17

8.5%

2014*

2.37

+.20

9.2%

(*) = Indicates these figures are derives based off of future estimates.

While the revenues grew at a slower pace, earnings per share growth looks good with the exception of 2010, where Coke only grew EPS by 2%. However, there were two years with double-digit growth of 16.9% and 20.6% in 2009 and 2011, respectively. If Coke can grow its 2013 and 2014 EPS figures by double digits -- currently at 8.5% for 2013 and 9.2% for 2014 -- than I really think the share price will rapidly appreciate. However, only time will tell if this is a feat Coke can accomplish.

Looking toward the valuation, we have a couple different ratios. We will mainly focus on the P/E ratio and the PEG ratio. The P/E ratio will take into account the valuation of the company -- as well as the future value -- based on its current price. The PEG ratio measures the value of a company with respect to growth. First we'll start with the P/E ratio.

Time Frame

P/E Ratio

((ttm)) P/E Ratio

19.6

2012 P/E Ratio

18.56

2013 P/E Ratio

17.11

2014 P/E Ratio

15.67

Looking at strictly the P/E ratio, Coke appears to be slightly overvalued, especially considering its relatively low growth rates. However, when you look at the industry valuations (non-alcoholic beverages), which has a P/E ratio of 18.6, you realize that perhaps Coke isn't as overvalued as it may first appear. To really pull together the meaning of the valuation though, you must consider growth. Below are the results for the 2013, 2014, and 2017 PEG ratio:

Time Frame

PEG Ratio

1-Year PEG Ratio

2.01

2-Year PEG Ratio

1.70

5-Year PEG Ratio

2.30

Note: The five-year PEG ratio is from Yahoo Finance.

A PEG reading of 1 would indicate that the particular stock is fairly valued. A reading under 1 would suggest a potentially undervalued stock and a reading over 1 would indicate a potentially overvalued stock. Even with the lowest reading of 1.70 for the two-year PEG ratio, this would suggest that Coke is indeed overvalued at these current levels.

Finally, I'd like to take a look at the dividend and the ability of Coke to continuing paying it. Coke has paid a quarterly dividend for over 90 years, since 1920. While we certainly could break down the entire performance, we'll only be focusing on the last 10 years worth of payouts. Below is a table and a chart of Coke's annual dividend:

Year

Dividend

Change ($)

Change (%)

2003

$0.44

+.04

10%

2004

$0.50

+.06

9.1%

2005

$0.56

+.06

12%

2006

$0.62

+.06

10.7%

2007

$0.68

+.06

9.7%

2008

$0.76

+.08

11.75%

2009

$0.82

+.06

7.9%

2010

$0.88

+.06

7.3%

2011

$0.94

+.06

6.8%

2012

$1.02

+.08

8.5%

As you can see from the data above, Coke has been extremely consistent with its dividend. Consistency is one of the most important things to me when looking at a stock for its dividend capabilities. Obviously the dividend must grow to be able to consider owning the stock, but I really like to see consistency, too. I take comfort in knowing that the company can continue raising the dividend, and with Coke, I feel very comfortable in its ability to do so. Though the dividend growth has slowed in recent years, I expect it to increase over the next several years.

Final Thoughts

In the end, we've got a company that has a lot of positives and a few negatives. The positives include a solid, consistent dividend from a fundamentally strong, international company. Coke has cemented itself in more than 200 countries and is literally a worldwide brand. Coke does see fierce competition from PepsiCo (NYSE:PEP), but overall has a much larger presence and market cap -- Coke has a market cap of $166.5 billion to PepsiCo's $111 billion market cap.

But the growth is concerning, hovering around 5-6% for revenues. When looking for a mature company, I personally look for a stock that either:

  • Has a lower yield, but attractive potential growth; or
  • has a higher yield with healthy cash flow, but less growth potential.

In this review, it would appear that Coke doesn't fit either scenario, something that causes a bit of concern for me. For Coke to be considered a dividend champ, I would like to see the yield over 3%. With a 2.70% yield, I would prefer to see more growth (although the EPS growth is rather impressive, I must say).

Another thing that bothers me a bit about Coke is its valuation. It appears that the stock price hasn't come down from its post-split price and is still trading near elevated levels. With a close at $37.13 on Tuesday, this is equivalent to $74.26 before the split (with a 52-week high around $80). The PEG also suggests that the valuation is a bit high when you factor in how much future growth is expected.

However, in the end, I still think Coke is a great company. The stock may trade lower due to the slightly elevated valuation -- or if the overall market takes a turn for the worse. But if you're buying for the long term, then it's not incredibly worrisome. I am long Coke and will continue to add to it on a regular basis, especially while it continues trading in this tight $36-$38 range. Coca-Cola is still a strong, cemented company with an extremely well-recognized brand. I don't expect anything to change in the coming years.

For a breakdown of Coca-Cola's dividend, please see my Seeking Alpha article here.

Disclosure: I am long KO, DIS, MCD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Coca-Cola: Do Investors Still Stand A Chance?