The Coca-Cola Company (NYSE:KO) stock has been mostly dead money for the past year. Then again, consumer staples stocks have been under tremendous pressure lately because of changes in consumer tastes and the relentless impact of digital platforms, such as Amazon.com, Inc. (NASDAQ:AMZN). Companies like Colgate-Palmolive Company (NYSE:CL), General Mills, Inc. (NYSE:GIS) and Campbell Soup Company (NYSE:CPB) have suffered double-digit losses in their share prices during this period.
Now, KO has actually been a sub-par performer for some time. Let’s face it, it’s not easy to grow a company the size of Coca-Cola, especially in an industry that is mature on a global basis.
Yet, I still think there is value with KO stock, at least for the long-haul. Keep in mind that the company has been making aggressive moves to transform itself — and there are encouraging signs of progress.
So, then, let’s take a look at some of the key drivers:
KO Stock: Global Scale
KO has some major barriers to entry. To get a sense of the prowess of KO, consider the following:
- The company holds the No. 1 position in total non-alcoholic ready-to-drink offerings, sparkling soft drinks, hydration, tea & coffee and juice, dairy & plant.
- There are 21 billion-dollar brands, double the number since 2007.
- The distribution footprint is massive. KO has a presence in 200+ markets and is partnered with roughly 250 bottlers.
But the company has also been working aggressively to find efficiencies in its business. No doubt, a big part of this has been through digital efforts. Consider that the company has been implementing core systems from Workday Inc (NASDAQ:WDAY) and SAP SE (ADR)(NYSE:SAP).
KO Stock: Diversification and Product Innovation
Perhaps the biggest threat to KO is the trend towards healthier consumption. In fact, there are concerns that the company could ultimately be subject to litigation exposure, similar to what happened to the tobacco industry, as well as increased taxes.
But the good news is that KO has been proactive in finding ways to deal with the problems, such as with reducing sugar content and decreasing the packet sizes. There has also been a diversification away from carbonated drinks. To this end, the company has focused on brands like Gold Peak, Honest Tea, Ayataka and FUZE TEA. All of these have seen strong growth rates.
Keep in mind that KO has been constantly experimenting with new categories and concepts. Last year, the company launched over 500 new products.
KO also has been smart with its acquisitions. Just look at the deal for Topo Chico Sparkling Mineral Water. While it cost $220 million, the product line has been getting lots of traction.
Finally, KO is even looking at expanding into alcoholic drinks. Recently the company launched a lemon flavored offering in Japan called chuhai. It’s still in the early stages, but this effort could present an interesting growth opportunity.
KO Stock: Financials and Dividend
KO has been showing strength on the top-line. During the latest quarter, the company posted 5% organic revenue growth for all operating segments. And, yes, cash flows remain robust as well. For the full-year, operating cash flows came to about $7 billion.
In other words, KO certainly has the resources to continue its transformation, but also to focus on shareholder value. For example, during the past 12 months, the company repurchased $3.7 billion of its outstanding shares. There was also another increase in the dividend rate — the 56th consecutive annual rise in its history, bringing the yield to a fairly attractive 3.6%.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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