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Coca-Cola Stock Split: Buy Now Says Schoenberger

Jeff Macke

Earlier this month beverage kingpin Coca-Cola (KO) beat analyst estimates on revenues and matched on earnings. This is a typically steady performance from a company that's been a blue chip since before most of us were born.

Not satisfied with that success, this week the company proposed a 2-for-1 stock split. If approved the split would be the first since 1996 and take place sometime in late July.

The question is what the company can do going forward and, more to the point, whether or not the stock is a buy now.

"Here's the best part of the entire Coca-Cola story that no one wants to talk about; human beings have to consume 16 drinks a day," says Todd Schoenberger, managing principal with The BlackBay Group. Schoenberger challenges viewers to try this then Tweet me about it. Done? Good.

"Two of those 16 drinks are Coca-Cola products right now," he adds. Coke has embedded itself in Europe, Asia, North America, South America and, to judge by its advertising, both the North and South Poles.

Market penetration creates a wonderful story but not an investment thesis. Where does Schoenberger expect Coke to get its growth, particularly given the growing backlash against the unhealthy nature of its core operations.

"Don't forget they also make water, Dasani water," replies the unflappable Schoenberger. Water has even better margins and growth potential than sugar-water.

Schoenberger expects some of the slowing organic growth to be offset by a cost-cutting, efficiencies of scale and operations, and a shareholder friendly board quick to provide dividends as well as the aforementioned stock split.

As for the Frontier Markets (FRN), the only world Coke has yet to conquer, Schoenberger praises the company's strategic initiative, morally questionable though it may be.

"It's interesting what they do, they actually go down and give free soda. They're just like Camel did with cigarettes decades ago," Schoenberger says, referring to cigarette company's infamous strategy of getting soldiers hooked on smoking by giving away free smokes in the trenches.

Schoenberger gleefully details what he claims to be Coke's strategy of going to frontier markets and giving away product until the locals get hooked on the sugary deliciousness. Once the addiction is locked in Coke starts selling product at 80 cents on the dollar.

It's a little morally dicey, granted, but there's an undeniable amoral brilliance there.

The only way Coke goes down is if another company is able to discredit the Coca-Cola brand. Others have tried it before, most notably during the "Cola Wars" of the 1980s but no one has laid a glove on the company since.

Add it up and Schoenberger says Coca-Cola is a buy both before and after the late July stock split.