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Gauging Coca-Cola’s stock performance and valuation

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Leading beverage maker

The Coca-Cola Company (KO) is the world’s largest beverage company with a strong brand portfolio across the carbonated and noncarbonated beverage categories. Through its extensive distribution system, the company serves consumers in more than 200 countries.

The Consumer Staples Select Sector SPDR Fund (XLP) has 9.08% holdings in Coca-Cola. It’s the second largest component in the fund next to Procter & Gamble Co. (PG).

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Coca-Cola’s stock underperforms

Since 2014, Coca-Cola’s stock price has appreciated by 3.3% to $41.9 as of February 13, 2015. It has underperformed peers such as PepsiCo Inc. (PEP), Dr Pepper Snapple Group Inc. (DPS), and Monster Beverage Corporation (MNST). These three peers appreciated by 20.7%, 61.4%, and 76.3%, respectively.

Monster Beverage’s stock surged in August 2014 after news of the company’s deal with Coca-Cola. We looked at this deal in the previous part of this series.

The Consumer Staples Select Sector ETF (XLP) was up 16.6% in this period. The broader market represented by the S&P 500 Index appreciated by 14.5% during this period.

Relative valuation

Currently, Coca-Cola has been trading at a price-earnings (or PE) multiple of 21.1. This is in line with its closest peer PepsiCo. The company’s other rival, Dr Pepper Snapple, is trading at a lower PE multiple of 19.8.

Coca-Cola is also trading at higher valuations compared to the S&P 500 Consumer Staples Sector Index and the S&P 500 Index. Coca-Cola’s 2014 revenues declined by 1.8% to $45.9 billion. Adjusted earnings per share (or EPS) declined by 1.9% to $2.04.

What’s the outlook for Coca-Cola?

Coca-Cola expects 2015 to be a transition year as the company implements a leaner operating model and makes significant media investments. The company anticipates a volatile consumer environment and continued softness in several emerging and developing markets.

However, the company does expect some improvement in its US operations. Coca-Cola expects currency headwinds to have ~5% impact on net revenues and a 7% to 8% adverse impact on profit before tax for 2015.

You can read more about Coca-Cola’s business in our Coca-Cola company overview series.

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