Coca-Cola: A Weak One-Star Company

Below are some highlights from of my detailed analysis of The Coca-Cola Company (KO). The link to this analysis can be found here (pdf file).

Company Description: The Coca-Cola Company engages in the worldwide manufacture, distribution, and marketing of nonalcoholic beverage concentrates and syrups.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

Avg. High Yield Price

20-Year DCF Price

Avg. P/E Price

Graham Number

KO is trading to at a premium to all but the avg. P/E price. If I exclude the high and low valuation, and average the remaining two valuations, KO is trading at a 35.2% premium. A star is deducted due to the high premium.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

Rolling 4-yr Div. > 15%

Dividend Growth Rate

Years of Div. Growth

1-Yr. > 5-Yr Growth

Payout 15% of avg

KO earned two Stars in this section for years of dividend growth and 1-yr. > 5-yr. growth. It has grown dividends for at least 10 years (46 years), and its 1-year growth rate is greater than its 5-year growth rate.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

NPV MMA Diff.

Years to >MMA

KO did not earn any stars in this section. KO's NPV MMA Diff. is $1,708, which is far less than the $10,000, but would be acceptable for the bluest of blue-chip companies like KO.

Other: KO is a member of the S&P 500, is an Aristocrat and an Achiever. In addition, Berkshire-Hathaway (BRK.A)(Warren Buffet's company) has long-held a significant stake in KO.

Conclusion: KO lost a star in the Fair Value section, picked up two stars in the Dividend Analytical Data section, and earned no stars in the Dividend Income vs. MMA section for a net total of one Star, which rates it as a 1-Star Weak stock.

Last Friday KO closed at $58.77, more than $5 below the $63.87 price I sold it for on January 15, 2008. Since selling the stock I have kept it on my watch list looking for the an appropriate time to reinvest. KO's metrics have improved since I sold the stock (its NPV MMA Diff. was negative when I sold it), but not enough to warrant a purchase at this time. I will continue to watch it from the sidelines.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I did not own shares of KO (0.0% of my Income Portfolio).