Coca-Cola (KO) is the largest soft drink company in the world. Coca-Cola is also an international company that has one of the best known brand names in the world. "The company generates 70% of its revenue and about 80% of its operating profit from outside the United States." The company has a market cap of $174 billion and in 2011 brought in revenues of $46 billion. The price to earnings ratio is 20.5, and the price to book ratio is 5.3.
In mid-April, Coca-Cola reported first quarter earnings. The company had first quarter earnings per share of $0.89 which beat consensus analyst estimates of $0.87. First quarter revenues were $11.13 billion, which was a 5.8% increase from revenues of $10.5 billion in the first quarter of 2011. First quarter net income was $8.57 billion, which was a 7.8% increase from net income of $1.9 billion in the first quarter of 2011. Investors were encouraged by the first quarter earnings report and the "Shares rose 2.6% to 74.35 just after midday intraday, the stock hit its best level since July 1998."
Coca-Cola's "Worldwide volume grew 5% on the quarter and volume grew in all key markets including a 2% rise in North America and a 20% rise in India. Developing nations saw the largest increase in volume with volume in China increasing 9% and in Brazil 4%." Coca-Cola's increased earnings reflected higher sales volumes and a 3% price increase.
After the first quarter earnings were announced Coca-Cola's CEO Muhtar Kent said "Our first quarter results underscore Coca-Cola's resilience and a long-term focus on quality growth in every region of the world. "Mr. Kent went on to say that Coca-Cola had "volume growth across every geographic operating group and revenue growth ahead of our long-term growth target".
Earnings growth is not new for Coca-Cola. The company's earnings have been trending higher for years. Since 2009 revenues have increased by 50% and net income has increased by 26%. The earnings growth has been driven by increased volume in developing markets, and an improving global economy. Overall it could be said that "Coca-Cola continues to execute a well-crafted business plan with efficiency and continues to leverage one of the best brands in the world."
Coca-Cola has three significant competitors in the non-alcoholic beverage sector. They are Pepsico (PEP), Dr Pepper Snapple Group (DPS) and Nestle (NSRGY.PK). Each of Coca-Cola's competitors sells at a discount to Coca-Cola. Nestle has a price to earnings ratio of 18.6 and a price to book ratio of 3.1 while Pepsico has a price to earnings ratio of 16.5 with a price to book ratio of 4.6, and Dr Pepper has a price to earnings ratio of 14.6 and a price to book ratio of 3.7. Coca-Cola sells at a premium to its competitors with a price to earnings ratio of 20.5 and a price to book ratio of 5.3.
It seems that investors are willing to pay more for Coca-Cola because of its predictable earnings growth and improving stock price. Coca-Cola's stock price has increased by 15.7% over the last 52 weeks and 96% over the last three years. This compares to Nestle, whose 52-week stock price is down by 1.5%, and Pepsico, whose 52-week stock price is down by 3.4% and finally Dr. Pepper, whose 52-week stock price is up by 2.1%.
In addition to an improving stock price, Coca-Cola has increased investor returns through its dividend. Coca-Cola has paid dividends in every year since 1920. The company has increased its dividend in each of the last 49 years, and over the last five years, the dividend has been increased by 50% to $2.04.
Coca-Cola is a mature company whose earnings growth has been quite strong. However, the company has set a goal of doubling its revenues over the decade ending in 2020, and is looking for options to increase revenues. The company's first step towards its goal was the 2010, purchase of the North American bottling operation of Coca-Cola Enterprises (CCE) for about $12.3 billion. The purchase has worked out well and Coca-Cola has done an excellent job of integrating the asset of Coca-Cola Enterprises. Coca-Cola is now looking at other options to increase revenues. One of those options could be the purchase of the Monster Beverage (MNST). Monster Beverage is currently trading around $67 with a market cap of $11.7 billion. On April 30th shares of Monster Beverage moved higher by 12.6% after "a Wall Street Journal report that says the energy drink maker is in deal talks with Coca-Cola." There are pros and cons attached to the purchase of Monster. One of the pros for the deal is that Monster is a fast growing company that has increased revenues by 89% and net income 92% since 2007. The problem with buying Monster is that the stock is expensive. Monster has a price to earnings ratio of 43.9 and a price to book ratio of 12. The stock price has increased by 114% over the last 52 weeks. Investors need to carefully consider the impact that the purchase of Monster could have on Coca-Cola's future earnings.
Coca-Cola's stock is performing well and is currently trading near its 52-week high. The company provides investors with three attributes that long-term investors crave: growing earnings, capital appreciation and a fast growing dividend. In addition to these attributes, Coca-Cola is easily the best performing stock in its market sector. Top investors such as Warren Buffet who has invested $14 billion in Coca-Cola see good value in the company. Other top investors agree. In total 44 hedge funds have invested in Coca-Cola. I agree with Mr. Buffett and the 43 other hedge fund managers who feel that Coca-Cola is an excellent long-term investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.