Is Coca-Cola a Buy?

I haven't been bullish on beverage king Coca-Cola (NYSE: KO), but with shares down roughly 15% from their late 2009 high, the market's now priced in some of the headwinds facing this iconic company. In other words, for investors who like Coca-Cola's long-term prospects, this could be a great time to drink up.

Coca-Cola faces two major hurdles, both of which may in fact turn out to be unscalable walls. The first is declining carbonated beverage consumption in North America. This issue has consistently struck me as a structural problem that yields no clear solution. But since I've shared my thoughts on the topic in the past, I'll spare readers yet another go-around.

The second growth obstacle is Europe, which presents headwinds in terms of both euro currency risk and actual consumer demand. Beginning with the former, Coca-Cola does hedge its foreign exchange exposure, but in 2009, the net effect of currency movements, including the impact of hedging activities, was a roughly 11% tumble in operating income. In fairness, the company expects that currency dynamics will slightly lift this year's operating income, but I wouldn't count on that, especially if market volatility persists through the coming quarters.

As for consumer demand, consider that Europe chipped in about 14% and 36%, respectively, of 2009 operating revenue and operating income. That means a general European slowdown would likely exact a not insignificant toll on overall results. Interestingly, as part of its deal to acquire Coca-Cola Enterprises' (NYSE: CCE) North American bottling operations, Coca-Cola may be selling its German bottling business to CCE a couple years down the road. Unfortunately, Germany is among the European nations that have particularly strong fundamentals, which in turn makes Coca-Cola's European success more dependent on the weaker hands, including the PIIGS.

The relevant question, then, is whether the above challenges are already fully reflected in Coca-Cola shares. Let's dive into some key numbers.

First of all, Coca-Cola shares are trading at a forward price-to-earnings multiple of 13.4, versus an average forward P/E of 15-16 in 2009 and 2008. Moreover, last year, the lowest forward P/E that shares touched was 12.2. So if we assume that today's macro prospects are sunnier than the gloomiest outlook that 2009 produced, then prices right here are indeed attractive.

On a relative basis -- and looking backwards -- Coca-Cola looks like a slightly better value than rival PepsiCo (NYSE: PEP). The former trades at a price-to-free-cash-flow ratio of 18.5, versus 19.6 for PepsiCo. Furthermore, looking five years into the future (insofar as that's humanly possible!), Coca-Cola trades at a PEG ratio discount to PepsiCo, Dr Pepper Snapple Group (NYSE: DPS), Nestle, indeed, the entire beverage/soft drinks industry. And it's a discount even compared to a highflier such as Hansen Natural (Nasdaq: HANS), for which analysts are predicting 9% annual growth over the next five years.

All told, I'd say this is definitely a good time to begin sipping at shares, but given the macro and market-specific troubles, I wouldn't yet go for the gulp.