Seeking Alpha
Profile| Send Message|
( followers)  

Coca-Cola (NYSE:KO) is the world's leading, U.S.-based beverage company. It is listed in the S&P 500 and has a market capitalization of $174 billion.

Coca-Cola is one of the American capitalist success stories of all time. Dr. John Pemberton invented Coca-Cola as a patent medicine to be sold in drugstores in 1886. A huge part of the success in the early 20th century can be attributed to its bottle design, which helped differentiate the product from competitors' products. Over the course of the century, the Coca-Cola company added new brands such as Sprite, Fanta and Powerade and continued to differentiate its existing product range with brands such as Diet Coke, Cherry Coke and Coke Zero.

Today, these products are known worldwide and sold in over 200 countries, which, in turn, leads to tremendous brand value. Sponsorship of high-profile events and partnerships with other S&P 500 companies adds to this value and ensures that the Coca-Cola brand name is present in peoples' every day life. In fact, I consider the majority of Coca-Cola's market capitalization to be attributable to its brand and recognition value.

Coca-Cola is currently trading at only a P/E of 17.7. The return on equity, the prime measure of economic success for shareholders, stands at a phenomenal 27%. Margins are impressive as well: The operating margin stands at 22% and the net profit margin at 19%.

Based on my DCF model, I deviate a 2013 EPS estimate of $4.75. Recognizing Coca-Cola's huge brand value, high profitability, very long earnings and dividend record, I am convinced the company can be attributed a fair multiple of 20x forward earnings. In this case, the company has an intrinsic value of $95 (assumptions: capital cost 10%, and conservative long-term EPS growth 5%). With $95 per share as our fair (conservative) value, the company has over 23% upside potential.

Also, the company pays a 2.6% dividend and is a key investment for Warren Buffett's Berkshire Hathaway (NYSE:BRK.A).

From a chart perspective, the stock marches steadily higher in an upward sloped trend canal with a lower bound at $75 and an upper bound of $80. Interestingly, the stock is heading higher without any meaningful changes in volume, which means that the stock is neither overbought nor oversold. It is crucial that KO stays in the trend canal and can rebound at $75, if necessary, to give bulls new impulses for going long.

Source: Why Coca-Cola Is Worth At Least $95 Per Share