Coca-Cola: The War On Sugar Has Just Begun

William Daniel profile picture
William Daniel
1.05K Followers

Summary

  • The sugar industries attempts to suppress negative research have failed. The classic villain of health, Fat, has been replaced by sugar.
  • Even the strongest companies involved in the industry, like Coca-Cola (NYSE:KO), will be affected.
  • New artificial sweeteners like Stevia and acquisitions of healthy beverage brands will not be able to fill the void in the short to medium term.
  • Revenue and dividend issues coupled with market pressures make Coca-Cola overvalued in my opinion.

We've all read the articles and seen the posts, sugar is our new public enemy number one. The negative health effects of sugars have always been a part of the public consciousness, but recent peer-reviewed studies and constant media attention have hammered home the dangers of excessive sugar consumption.

Most adults consumed 10% or more of calories from added sugar (71.4%) and approximately 10% consumed 25% or more in 2005-2010... The risk of CVD mortality increased exponentially with increasing usual percentage of calories from added sugar.

The rise of the Ketogenic diet with its high-protein, high-fat, low-carb, and no sugar approach has also caused many to rethink their diets. Fat is no longer the whipping boy it has been for 50+ years.

The effects of the 'war on sugar' can already be seen in the declining growth in consumption. The expected growth of only 1.04% during 2017/18, according to Platts Kingsman, is a substantial fall from the 2% average over the past decade.

Today, with the 'war on sugar' in mind, I want to discuss the well thought of and buffet-backed, Coca-Cola (NYSE:KO). With 55 straight-years of growing dividends, a yield around 3.1%, and solid fundamentals, on the surface Coke seems to be a decent investment for a dividend growth investor like myself; but current market pressures and declining revenues are illustrative of dangerous stagnation in my opinion.

Declining Revenues and Poorly Covered Dividends

Coca Cola is trading right around its 52-week high of $46 a share. The company trades at ~32X earnings and has an EPS of 1.42. This doesn't compare favorably to its main rivals Pepsico Inc. (NYSE: PEP) and Dr. Pepper Snapple Group (NYSE: DPS), which trade at much more reasonable figures.PEP PE Ratio (<a href=

data by YCharts

During Q1 2017 Coke's profit fell 20%, this can be explained(at least in

This article was written by

William Daniel profile picture
1.05K Followers
Fortune Markets and Economy Reporter. Prev. Business Insider Investing Reporter. MS Business Journalism. I'm mostly a passive investor these days(and I think you probably should be, too), but I still "seek alpha" with a portion of my portfolio.The more I learn, the more I realize just how much I have to learn. Do your own research...blah, blah, blah...*some quotes about investing or something*

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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