Coca-Cola Bubbles to a 52-Week High: Will It Head Higher?

Shares of Coca-Cola (NYSE: KO  ) hit a 52-week high yesterday. Let's look at how the company got here and whether clear skies remain in the forecast.

How it got here
There are advantages to being the most valuable brand name in the world, according to research firm Interbrand. Coca-Cola has been able to use its easily identifiable image as well as above average growth in its water and energy drink segments to continue to grow its operations domestically and abroad while its competitors struggle to keep up. PepsiCo (NYSE: PEP  ) has been ceding market share to its rivals for some time now.

Yesterday's first-quarter earnings report solidified Coke's position as the dominant beverage company. It reported a better-than-expected profit with sales growth in Russia, India, the Middle East, and Africa; it ticked up internationally by 9% and domestically by 2%. More impressively, energy drink sales jumped 25% which is the type of growth that could rival Monster Beverage (Nasdaq: MNST  ) , a company known to receive nearly all of its revenue from energy drinks. With Coke owning 15 of the 33 non-alcoholic beverage lines that gross over $1 billion annually, it's not tough to realize why it's at a new 52-week high.

How it stacks up
Let's see how Coca-Cola stacks up next to its peers.

KO Chart

KO data by YCharts

This chart is a little misleading. If you were to look at a five-year chart, Coke would be outperforming PepsiCo vastly, but Monster (formerly Hansens Natural) would be crushing everyone.



Price/Cash Flow

Forward P/E

Dividend Yield

Coca-Cola 5.3 18.1 16.5 2.8%
PepsiCo 5 11.9 14.9 3.1%
Dr Pepper Snapple Group 3.8 11.7 12.6 3.5%
Monster Beverage 11.4 35.7 27.6 0%

Source: Morningstar, Yahoo! Finance, dividend yield is projected.

As usual, there's a premium to be paid for growth in the consumer goods sector. Monster Beverage's energy drinks are popular, but its valuation is almost nauseating at 35.7 times cash flow -- especially when you consider it pays no dividend. PepsiCo is a nice all-around value considering its yield of 3.1%, but its growth has trailed Coca-Cola for years. Dr Pepper Snapple Group (NYSE: DPS  ) pays a great dividend and appears cheap based on these metrics, but as an investment it has a long way to go before it will be as safe as Coke's 50 straight annual dividend increases.

What's next
Now for the real question: What's next for Coca-Cola? That question really depends on whether or not the company will be able to continue its global expansion without interference from PepsiCo and Dr Pepper Snapple, and whether it can actually continue to grow its domestic operations which the company sees as a primary revenue driver.

Our very own CAPS community gives the company a highly coveted five-star rating, with an overwhelming 95.3% of members expecting it to outperform. I place myself among the 6,104 members who currently have made a CAPScall of outperform on Coca-Cola and find myself breakeven on the stock with both it and the S&P 500 up 10% since my call. There's plenty to like about Coke if you're a long-term investor. It has a strong brand name, an unparalleled product portfolio, a commanding lead in the carbonated beverage market over PepsiCo, and it's focusing its growth in high-margin, unsaturated areas. That's one reason I recently chose Coke as a company you could buy for your IRA.

In my opinion, Starbucks (Nasdaq: SBUX  ) is the only other beverage company that Coke needs to worry about because its caffeinated beverages have the potential to eat into Coke's energy drink business, which it is already defending from Monster Beverage. Then again, I'd be happy to own either in my own portfolio. I'll remain long and strong with Coke in my CAPS portfolio.

Craving more input on Coca-Cola? Start by adding it to your free and personalized watchlist. It's a free service from The Motley Fool to keep you up to date on the stocks you care about most.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley fool owns shares of Coca-Cola, PepsiCo, and Starbucks. Motley Fool newsletter services have recommended buying shares of Coca-Cola, PepsiCo, Monster Beverage, and Starbucks, as well as creating a diagonal call position in PepsiCo and writing covered calls on Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/21/2016 4:00 PM
KO $42.13 Up +0.20 +0.48%
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MNST $147.26 Up +0.65 +0.44%
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