Barron's gets bullish on Coke


"Much of Coke's (KO) recent volume weakness can be traced to temporary factors that should abate next year," writes Jack Hough, who thinks shares of the world's largest beverage company could gain 20% next year.

The "key" for KO, says Hough, citing Janney analyst Jonathan Feeney, is the 700M people that will join the middle class over the next seven years. This could cause "soft-drink sales to double" over the next decade or so.

Hough goes on to cite a number of sell-siders including RBC's Nik Modi who notes KO's "share price implies just 2.3% compounded-yearly growth in earnings before interest and taxes through 2020, about four percentage points below the company's long-term pace," and Wells Fargo's Bonnie Herzog who says a spin-off of the company's bottling operations "would raise profit margins and unlock a higher valuation for the stock."

Apples to apples (perhaps): Barron's says KO trades at a 4% premium to Pepsi (PEP) — that premium has at times reached 20%.

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Comments (33)
  • Tradevestor
    , contributor
    Comments (5011) | Send Message
     
    Thank you Barrons, just a little late to the party http://seekingalpha.co... :)
    28 Dec 2013, 04:30 PM Reply Like
  • BAHAMAS1
    , contributor
    Comments (5121) | Send Message
     
    The 1st time I ever agreed with a barrons article .
    28 Dec 2013, 04:38 PM Reply Like
  • Mario Squicciarini
    , contributor
    Comments (32) | Send Message
     
    I don't believe KO to PEP is "apples to apples", seems much more like Soda to Snacks to me...
    28 Dec 2013, 04:43 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1126) | Send Message
     
    True - most of the value in PEP is their snack dominance. It's sad that an investing publication doesn't realize this.
    28 Dec 2013, 04:59 PM Reply Like
  • positivethoughts
    , contributor
    Comments (2064) | Send Message
     
    Coke has doubled in the past 5 years. And its still not that expensive, all things considered. So, going forward, it is a decent stock if you want something that is 'safe'.

     

    Coke has to grow through acquisitions. Something similar to how Nestle has expanded their distribution.
    28 Dec 2013, 05:10 PM Reply Like
  • justaminute
    , contributor
    Comments (1558) | Send Message
     
    Many, many things have doubled in the last five years. The time frame makes for skewed results. While KO is an excellently managed company, I would suggest the next 5 years will not result in a double. Consumption of carbonated beverages, while not KO's only business, seems to be on the decline. What acquisitions do you see KO making that could be large enough to make an impact on earnings?
    28 Dec 2013, 06:15 PM Reply Like
  • TippingPoint
    , contributor
    Comments (165) | Send Message
     
    Agreed. Slow grower at best. Not too smart to take your ad budget and basically do PSAs that your main product makes people fat. I'll leave it for people who like See's Candies, Dairy Queen, and passbook savings accounts.
    28 Dec 2013, 07:13 PM Reply Like
  • omarbradley
    , contributor
    Comments (966) | Send Message
     
    pepsi needs to do a major revamp of their restaurant line up. simply put they make god awful food at ridiculous prices. they need to get their best food scientists on this pronto as well. Dunkin Donuts...which i love...is running circles around everyone right now. simply put they don't make food that kills you. i know sounds like a low standard...but in fact it isn't. i also think Coke needs to get moving on the health drink bandwagon too. the best area i see are in protein shakes...start introducing some pricing power into this market...get the world not just less fat but "strong" too. we really don't need that much food to make us healthy...but it has to start with something that isn't going to kill the human race. and and Coke needs to change their name in Chinese. It means "sit on the urinal and die" when translated I think. totally retardism..."maintained for decades" amazingly. i mean Coke and Pepsi have created clean drinking water for the entire Planet...this is not some small "favor" for humanity. "just make sure you use a straw" and you're good to go.
    28 Dec 2013, 06:28 PM Reply Like
  • civ-e
    , contributor
    Comments (682) | Send Message
     
    what restaurant lineup of PEP are you referring to?
    29 Dec 2013, 12:13 AM Reply Like
  • auto44
    , contributor
    Comments (3569) | Send Message
     
    omar bradley Are you saying that the white flour and sugar used to make dunkin doughnuts are health foods?
    29 Dec 2013, 01:33 PM Reply Like
  • Uncle Pie
    , contributor
    Comments (4322) | Send Message
     
    sugary drinks and junk food...a perfect recipe for diabetes. Which is why Novo Nordisk, NVO, the world's largest provider of medicines to control diabetes, has outperformed KO, PEP, et al. over the past 10 years.

     

    Long NVO
    28 Dec 2013, 07:06 PM Reply Like
  • chopchop0
    , contributor
    Comments (5155) | Send Message
     
    agreed. NVO has been a bit funky lately, but that's given me a good opportunity to get in at the 150s/160s.

     

    Between PEP and KO, I'd much rather be in PEP with their bigger diversity of both drink AND snack offerings.
    28 Dec 2013, 10:57 PM Reply Like
  • Ajayyy
    , contributor
    Comments (325) | Send Message
     
    Maybe it's now time for Pepsi to trade at a premium.
    28 Dec 2013, 07:24 PM Reply Like
  • chopchop0
    , contributor
    Comments (5155) | Send Message
     
    agreed. They at least have snacks to fall back on during a soda backlash
    28 Dec 2013, 10:58 PM Reply Like
  • idkmybffjill
    , contributor
    Comments (1911) | Send Message
     
    If soda sales double, KO's profit will likely double. A double over a 10 year period? No thanks - there's better stocks out there.

     

    I'm all for the spinoff though
    28 Dec 2013, 08:10 PM Reply Like
  • joelkatz
    , contributor
    Comments (566) | Send Message
     
    No mention of $SODA chipping in?
    28 Dec 2013, 10:36 PM Reply Like
  • KJP712
    , contributor
    Comments (469) | Send Message
     
    Quick observation,they need to put more Sprite on the shelves.They have too many variations of Coca-cola and need to use the shelf space more wisely.
    28 Dec 2013, 11:12 PM Reply Like
  • iseeksafestocks
    , contributor
    Comments (8) | Send Message
     
    Dunkin Donuts doesn't make food that kills you....
    28 Dec 2013, 11:31 PM Reply Like
  • wwbgator
    , contributor
    Comment (1) | Send Message
     
    Pepsi has restaurants?
    28 Dec 2013, 11:33 PM Reply Like
  • chopchop0
    , contributor
    Comments (5155) | Send Message
     
    They were a spinoff from Pepsi, with the restaurants becoming YUM (formerly known as Tricon, Intl). Not sure if they still have any type of relationship although you still see Pepsi products in all of the YUM restaurants.
    29 Dec 2013, 12:21 AM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    Justaminute, Coke may very well double in the next 5 years but it likely won't be due to acquisitions. It will be on continued penetration into emerging markets. Coke's distribution system is very impressive. When a new opportunity arises in a country, a city, a village, there is a Coca-Cola distribution point somewhere close by...anywhere in the world. The training, equipment, personnel, it is nearby. Subsequently, speed to market gives Coke a huge advantage over most any Company in the world.

     

    The trend in the U.S. of reduced sugar soft drink consumption, while important, is but a small part of Coca-Cola's reach. The trend has helped keep the stock price from growing at a great rate, which has given us several years of excellent buying opportunity.
    28 Dec 2013, 11:34 PM Reply Like
  • auto44
    , contributor
    Comments (3569) | Send Message
     
    George P Burdell Yep. They have a sales location or will have on almost every street corner in the world.
    29 Dec 2013, 01:37 PM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    Having worked for Coca-Cola for 31 years, I can tell you that the Company's commitment to shareholders is incredible. Every meeting, every memo, every speech, every EVERYTHING is centered around shareholders and the growth and security of the Company for the long haul. This Company doesn't make short term, risky decisions for "show". They are confident enough to make decisions that secure the Brand, the employees, and shareholders.

     

    Most important to me, as a shareholder, they do not tolerate "show boat" individuals that attempt to make names for themselves at the expense of shareholders. In my time there, I never, not once, saw or heard of the Company attempting to hide disappointing performance. When there is a tough quarter, they report it as such and fix it.

     

    I have never sold a share of Company stock I have accumulated for 30 years and just added another 400 shares last week. Feel just as confident buying today as ever..

     

    Hope everyone is OK with me sharing a bit of anecdotal support of this Company from a former employee... Thanks
    28 Dec 2013, 11:35 PM Reply Like
  • stephenelkins
    , contributor
    Comments (142) | Send Message
     
    Thanks for sharing, George! Appreciate it.
    29 Dec 2013, 12:49 AM Reply Like
  • ConservativeOutperformer
    , contributor
    Comments (721) | Send Message
     
    Great story...... You obviously must have been absent for the channel stuffing issue in the late '90's. Either that or you consider inflated financials all about 'the shareholders'......

     

    Good luck!
    30 Dec 2013, 10:50 AM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    No problem stephenelkins... I'm happy to share any non-proprietary opinions about this Company... had the unique honor of working in the middle management of the company in many locations. When I'm seeking information about a company I always seek those that have worked in mid-level leadership roles. These individuals are often the best source of "real world" knowledge. The direction of the company is explained in great detail, yet they are in contact with the team "on the ground" actually executing the direction.

     

    I certainly own other names as well, but before I enter any position, the first test is against Coca-Cola's standard of stewardship. There are several other companies out there that have excellent standards as well, but KO will always hold the lion's share of my portfolio... I like sleeping at night and providing trusted security for my family's future.
    29 Dec 2013, 05:57 AM Reply Like
  • stephenelkins
    , contributor
    Comments (142) | Send Message
     
    I love it! I wish you and your family the best. And btw ... I'm with auto44 from the respect that I would love to hear other companies you like.
    29 Dec 2013, 03:24 PM Reply Like
  • auto44
    , contributor
    Comments (3569) | Send Message
     
    George P…. Please share with us the name of other companies which you feel have good stewardship. Thanks.
    29 Dec 2013, 01:41 PM Reply Like
  • wbjudge
    , contributor
    Comments (76) | Send Message
     
    I think cokes next acquisition might very well be WTER.
    29 Dec 2013, 09:51 PM Reply Like
  • jjnagoings
    , contributor
    Comments (190) | Send Message
     
    Why do you say that?
    29 Dec 2013, 10:06 PM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    stephenelkins, auto44... I don't mind sharing some of my other holdings that I feel have good stewardship. Please allow me to say that I am not advocating that anyone should agree with me or my personal philosophy of money management. I would not be so presumptuous to think what pleases me would be "enough" for others with different personal needs or ambitions.

     

    We live a relatively modest lifestyle and prefer to build wealth slowly for security and for the sake of our children. They, in turn, have been taught to do the same for theirs. Our goals are to live a good, modest life and have a family "safety net" to protect against unforeseen challenges that could potentially harm us.

     

    That philosophy will most certainly not appeal to a very large group of people.

     

    That being said, here are a few principles that guide our investment decisions.

     

    * We hold very limited Mutual Funds- I like to have a clear view of what someone is doing with my money and like to keep dollars employed working for me versus paying fees. This is just a personal preference, NOT suggesting folks shouldn't own mutual funds.

     

    * I generally invest in companies that are not engaged in "trends" but instead are engaged in activities that people are going to "consume" for years to come. That usually precludes me benefitting from some of the outstanding rises of companies like facebook, twitter, netflix etc. but keeps us on a steady, compounding rise. Note: I am NOT against these companies, I LOVE them and LOVE growth, ingenuity, and prosperity. I want nothing but success for these companies, it is critical to our economy and long term fiscal health.

     

    * I invest in companies that report their finances in a manner that my training and experiences allows me to understand.

     

    * I do my best to own companies that can withstand a significant market downturn and emerge healthy within a couple of years.

     

    Here are some of the names I have held for at least 10 years now..

     

    KO, BDX, MSFT, WFC, JNJ, CVX, WMT, NSRGY, MCD, CLX, INTC, PG, COP

     

    3 years- KMP

     

    Recent add- IBM

     

    Am 1.5 years into one relatively "high risk" investment that doesn't otherwise fit my philosophy but shows great promise in an area I consider to be a significant area of growth for our country.

     

    Have moved in and out of a few other names WLP, CSX, etc.

     

    Biggest mistake made in last few years...exiting AXP last year

     

    Most of the names in the 10 year category are companies that I have dealt with directly and have the highest level of trust and confidence.
    30 Dec 2013, 12:51 AM Reply Like
  • heymishy
    , contributor
    Comments (34) | Send Message
     
    Your principles are a breath of fresh air . . . And ones I will give much thought to, as they resonate with my goals. Thank you for sharing! Happy New Year to you and your fortunate family.
    30 Dec 2013, 12:16 PM Reply Like
  • George P. Burdell
    , contributor
    Comments (298) | Send Message
     
    You're welcome heymishy... Very Happy New Year to you and your family as well..!
    30 Dec 2013, 10:12 PM Reply Like
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