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Gauging Coca-Cola’s Valuation Compared to Its Peers

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Forward valuation multiple

As of December 15, 2017, Coca-Cola (KO) was trading at a 12-month forward PE (price-to-earnings) ratio of 23.8x. Its valuation multiple has risen 0.2% since the announcement of its fiscal 3Q17 results in October 2017. Coca-Cola exceeded analysts’ sales and earnings expectations for fiscal 3Q17.

Comparison with peers

Coca-Cola is currently trading at a higher valuation multiple than its nonalcoholic beverage peers PepsiCo (PEP) and Dr Pepper Snapple (DPS) but lower than Monster Beverage (MNST). As of December 15, 2017, PepsiCo, Dr Pepper Snapple, and Monster Beverage were trading at 12-month forward PE ratios of 21.9x, 19.9x, and 39.4x, respectively. Coca-Cola has a 16.7% stake in leading energy drink maker Monster Beverage as part of a strategic partnership between the two entities. In 2015, Coca-Cola transferred its energy drinks portfolio to Monster Beverage in exchange for the latter’s non-energy drinks portfolio.

The 12-month forward valuation multiple differs among peers based on several factors such as growth expectations and risk profile.

Growth expectations

Analysts expect Coca-Cola’s revenue to fall 15.8% to $35.2 billion in 2017. Its 2017 adjusted EPS (earnings per share) is expected to remain almost unchanged at $1.91. Currently, analysts expect KO’s revenue to fall 12.4% and its adjusted EPS to rise 3.7% in 2018.

In its Investor Day Meeting on November 16, 2017, Coca-Cola reiterated its long-term target revenue and earnings outlook. It expects organic revenue to grow by the mid-single digits over the long term and its comparable EPS to rise in the high single digits on a currency-neutral basis.

We’ll take a look at Coca-Cola’s strategy to improve its revenue in the next part of this series.

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