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How Does Coca-Cola’s Valuation Stack Up with Peers?

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Forward valuation

Coca-Cola’s (KO) 12-month forward (KO) price-to-earnings ratio declined 8.5% to 20.5x on February 14 in reaction to the company’s weak guidance for 2019. Coca-Cola’s adjusted EPS increased 8.9% to $2.08 in 2018 on organic revenue growth of 5%. The soda giant expects organic revenue growth of 4% in 2019, while adjusted EPS growth is expected in the -1% to 1% range. Uncertain market conditions and currency fluctuations are expected to negatively influence the company’s performance this year.

As of February 15, Coca-Cola was trading at a 12-month forward PE of 21.1x, while PepsiCo had a lower valuation multiple of 19.9x. Smaller peers Keurig Dr Pepper (KDP) and Monster Beverage (MNST) were trading at a forward valuation multiple of 22.9x and 29.4x, respectively, as of February 15.

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What do analysts expect?

Analysts expect Coca-Cola’s revenue to rise 8.3% to $34.5 billion and adjusted EPS to rise 2.4% to $2.13 in 2019. Analysts expect PepsiCo’s revenue to rise 3.0% to $66.6 billion in 2019 and rise 0.4% to $5.68.

Keurig Dr Pepper and Monster Beverage are expected to announce their fourth-quarter results later this month. Analysts expect Monster Beverage’s adjusted EPS to rise 27.3% to $1.77 in 2018 on revenue growth of 12.3% to $3.8 billion. Currently, analysts anticipate Monster Beverage’s adjusted EPS to grow 13% in 2019 on revenue growth of 9.8%.

Keurig Dr Pepper’s top line is expected to grow 65.4% to $11.1 billion reflecting additional sales from the merger of Dr Pepper Snapple with Keurig Green, which was completed in July 2018. Keurig Dr Pepper’s adjusted EPS is forecasted to decline 76.9% to $1.04 due to the impact of the merger. For 2019, analysts currently expect Keurig Dr Pepper’s revenue to rise 2.3% and adjusted EPS to grow 18.3%.

Overall, Coca-Cola and its nonalcoholic beverage peers are focusing on offering better beverage choices to consumers amid weakening demand for carbonated drinks.

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