Can anyone remember the last time that soda king Coca-Cola
What analysts say:
- Buy, sell, or waffle? Seventeen analysts drink the Kool-Aid at Coke (to mangle a metaphor), giving the stock 13 buy ratings and four holds.
- Revenue. On average, they predict 18% sales growth, to $7 billion.
- Earnings. Yet profits are only expected to grow 6% to $0.55 per share.
What management says:
Big news at Coke this quarter: In December, CEO Neville Isdell announced he will be stepping down on July 1, 2008, ceding his position to current COO Muhtar Kent. With the exception of a six-year stint at Turkey's Efes brewer and Turkish bottler Coca-Cola Icecek, Kent has worked for Coke for the past three decades.
What management does:
For a business that's been in business for more than a dozen decades, you'd think Coke's results would be just a bit more consistent than we've seen lately. Don't get me wrong -- 60%-ish gross margins on syrup are pretty terrific. Same goes for mid-20s operating margins and a 20-ish net. Taking the operating margins as our guide, we see that Coke is currently top of the pops -- earning more pennies per dollar of revenue than Hansen Natural
6/06 |
9/06 |
12/06 |
3/07 |
6/07 |
9/07 |
|
---|---|---|---|---|---|---|
Gross |
65.3% |
65.8% |
66.1% |
65.6% |
64.9% |
64.2% |
Operating |
27.2% |
27.3% |
27% |
26.8% |
26.4% |
26% |
Net |
21.9% |
22.2% |
21.1% |
21% |
20% |
19.8% |
One Fool says:
The other big news this quarter was last week's announcement that Coke has taken a 40% interest in Bethesda, Md.-based Honest Tea. Coke's kept mum so far on the terms of its investment. But while we don't know how much it spent (yet), we do know what it got for its money: a tiny, organic bottled tea vendor that counts Whole Foods
My very back-of-the-envelope guess is that we're looking at a purchase price of perhaps seven times sales (twice what Jones Soda shares fetch, and Jones is growing at half Honest Tea's rate). Call it $65 million, or thereabouts, for a 40% interest in the company. Pocket change for Coke, in other words.
But even if my W.A.G. ("wild donkey guess") is off by a few million, this deal looks good for Coke. Its own shares sell for five times sales, yet Coke has grown at only 9% or 10% per year over the last five years. My guess is that Coke would find it pretty hard to overpay for seven times that pace of growth. Once added to the Atlanta alliance, Honest Tea should turn a profit in short order.
Related Foolishness:
- The Best Blue Chip for 2007: Coca-Cola
- Another Path to Profits: Riding Coca-Cola's Coattails
- Quick Take: Pleasantly Surprised by Diet Coke Plus
Does the team at Motley Fool Inside Value agree? Grab yourself a free trial, visit the discussion board, and find out.