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Table of Contents
Preface .................................................................................
  	
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  3	
  
Preface
The Coca-Cola Company is a beverage company that manufactures, markets and
sells nonalcoholic be...
  	
   4	
  4	
  
Chapter I – Sector and Industry Analysis
Section I – A Sector Analysis
The Coca – Cola Company is one of...
  	
   5	
  5	
  
sector relative to the market is low. The low risk of the sector was seen by the
minimized loss in 2008-...
  	
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  6	
  
Section I – B Industry Analysis
The Coca-Cola Company competes within the beverage industry, but more
sp...
  	
   7	
  7	
  
differentiation through brand loyalty and packaging design. The large competitors invest
heavily in adve...
  	
   8	
  8	
  
to purchase more expensive alternatives to carbonated drinks are expected to increase
with disposable in...
  	
   9	
  9	
  
Competition within the bottled water industry is high. Firms within the industry
compete on price and br...
  	
   10	
  10	
  
the management of Coca-Cola to focus on future growth potential while not jeopardizing
current strengt...
  	
   11	
  11	
  
investing in emerging markets such as the BRIC nations and others in which soda, juice
and bottled wat...
  	
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Chapter III – Quantitative Analysis of the Firm
Section III – A
Liquidity
Ticker	
   Company	
  Name	
...
  	
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replacement of inventory due to either lower sales or high inventory levels. Dr. Pepper
Snapple Group ...
  	
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ratios indicate higher sales revenue and cost control. Higher sales may be due to Coca-
Cola’s ability...
  	
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Source: Yahoo! Finance
Bollinger Bands
Bollinger Bands measure the moving average of the stock price a...
  	
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Source: Yahoo! Finance
Above is a closer examination of the Coca-Cola Company through the use of
Bolli...
  	
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Source: Yahoo! Finance
Volume
The amount of trading volume can often be an indicator of the investor’s...
  	
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Section IV - B
CAPM Model
Required Return = Risk Free Rate + Beta (Expected Market Return – Risk Free ...
  	
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Technical analysis of the Coca-Cola Company shows that the firm has recently
been appreciating. Short-...
  	
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Works Cited
Ahmed, Rumman and Gulati, Nkhil. "India Has 1.2 Billion People but Not Enough Drink
Coke.”...
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The coca _cola_company

  1. 1.     444444444444444444444444444444444444444444444444444444444444444444444444 444444444444444444444444444444444444444444444444444444444444444444444444 444444444444444444444444444444444444444444444444444444444444444444444444 4444444444444444444444444444444444444 The  Coca  –  Cola  Company   Company  Analysis   Nicholas  Brunner   ABSTRACT   The  Coca  –  Cola  Company  analysis  focusing  on  the  industry,  sector,  qualitative  and   quantitative  analysis,  including  a  stock  recommendation.    
  2. 2.     2  2   Table of Contents Preface .................................................................................................................................3 Chapter I – Sector and Industry Analysis ............................................................................4 Section I – A Sector Analysis ...................................................................................................... 4 Section I – B Industry Analysis ................................................................................................... 6 Soda Production within the United States..........................................................................................6 Juice Production within the United States .........................................................................................7 Bottled Water Production within the United States...........................................................................8 Chapter II – Qualitative Analysis for the Firm....................................................................9 Content 2020......................................................................................................................................9 Market Share....................................................................................................................................10 Horizontal Integration......................................................................................................................11 Product and International Diversification........................................................................................11 Chapter III – Quantitative Analysis of the Firm................................................................12 Section III – A Financial Ratios ................................................................................................ 12 Liquidity Ratios................................................................................................................................12 Asset Utilization Ratios ...................................................................................................................12 Debt Ratios.......................................................................................................................................13 Profitability Ratios ...........................................................................................................................13 Section III – B Price Ratios........................................................................................................ 14 Chapter IV – Recommendation .........................................................................................14 Section IV – A Technical Analysis ........................................................................................... 14 50 Day and 200 Day Moving Average ............................................................................................14 Bollinger Bands................................................................................................................................15 Resistance Level ..............................................................................................................................16 Volume.............................................................................................................................................17 Section IV – B Final Recommendation ..................................................................................... 18 CAPM Model...................................................................................................................................18 Summarization and Recommendation .............................................................................................18 Works Cited ...........................................................................................................................
  3. 3.     3  3   Preface The Coca-Cola Company is a beverage company that manufactures, markets and sells nonalcoholic beverage concentrates, syrups, and ready-to-drink beverages worldwide. Founded in 1886 when John Stith Pemberton invented the Coca-Cola formula and sold the formula to Asa Candler who incorporated the Coca-Cola Company in 1892. The Coca-Cola Company is headquartered in Atlanta, Georgia and generates sales from over 200 countries. The Coca-Cola Company is a large component of the consumer staple sector. The consumer staple sector is composed of consumer products such as food, drug retailing, beverages, tobacco, household products, and personal products. The Coca-Cola Company’s products include carbonated non-alcoholic beverages, energy drinks, sports drinks, purified water, juice, ready-to-drink coffee and ready-to-drink tea. With the acquisition of Coca-Cola Enterprises’ North American division in 2010, the Coca-Cola Company shifted focus from a producer of syrups to controlling the production, bottling and distribution of beverages. The Coca-Cola Company owns sixty-nine beverage production facilities, ten beverage concentrate/syrup manufacturing plants, two bottled water facilities and one juice concentrate facility within North America. Bottling and distribution of Coca-Cola products outside of North America is handed by independent Coca-Cola affiliates, with the largest being Coca-Cola Enterprises. Coca-Cola beverage products are sold under 500 different brands, most notably Coca-Cola, Diet Coke, Fanta, Sprite, Dasani, Minute Maid, Powerade, Simply, NOS, Honest Tea, Nestea, and Georgia. Coca-Cola’s top competitors are Dr. Pepper Snapple Group Inc. (DPS), Nestlé (NSRGY), and Pepsico Inc. (PEP). Dr. Pepper Snapple Group Inc. primarily manufactures syrups and concentrates for nonalcoholic beverages under the brands Dr. Pepper, Crush, Canada Dry, Sunkist, Hawaiian Punch, Snapple, AriZona, and Yoo-Hoo. Nestlé manufactures and sells nutrition and wellness products worldwide. Beverages in direct competition to Coca-Cola products are, Nestlé Pure Life, Poland Spring, Perrier, Juicy Juice, Milo, and Nesquick. Pepsico manufactures and sells snacks, carbonated and non-carbonated beverages. Beverages in competition to Coca-Cola include Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, and Sierra Mist.
  4. 4.     4  4   Chapter I – Sector and Industry Analysis Section I – A Sector Analysis The Coca – Cola Company is one of the largest companies in the consumer staples sector. The consumer staples sector, as described by Select Sector SPDRs, is composed of “companies primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products and personal products” Below are returns of all sectors within the last ten years. Source: Select Sector SPDRs As you can see in the above chart the consumer staples sector has been one of the most stable sectors of the market. In the downturn of 2008 – 2009 the consumer staple sector returned the smallest loss; the consumer staple sector lost 9.49% while the S&P 500 lost 25.49%. Key statistics of the consumer staples sector spdr etf (XLP) are below. As you can see to the left, the beta of XLP is 0.50. Thus the risk of the consumer staples
  5. 5.     5  5   sector relative to the market is low. The low risk of the sector was seen by the minimized loss in 2008-2009. If investors are pessimistic about the overall market, the consumer staples sector is a valuable safe option since the sector minimizes losses while still allowing for growth. Recently, the consumer staples sector has experienced some of the fastest growth. Below are the recent returns of the consumer staples sector spdr etf (XLP) compared to other sectors. Source: Select Sector SPDRs As seen above, the consumer staples sector has experienced the highest growth than any other sector for the last month, quarter, and calendar YTD as of 2/28/13. With high recent growth and a low beta, the consumer staples sector is a viable option for investment. Select Sector Latest Calenda r One Annualized SPDR Fund Quarter YTD Year Three Five Ten SinceOne Month Year Year Year Inception* Materials (XLB) -1.46% 2.46% 2.46% 6.36% 9.74% 1.33% 10.23% 6.96% Health Care (XLV) 1.27% 8.78% 8.78% 22.42% 13.66% 7.93% 7.06% 5.63% Cons Stap (XLP) 3.27% 9.20% 9.20% 18.11% 15.38% 10.01% 9.93% 4.82% Cons Disc (XLY) 1.13% 6.86% 6.86% 19.18% 20.29% 12.04% 9.98% 6.40% Energy (XLE) 0.86% 9.18% 9.18% 6.03% 13.49% 2.17% 15.08% 10.52% Financials (XLF) 1.24% 7.27% 7.27% 21.49% 7.81% -5.32% 0.45% 0.41% Industrials (XLI) 2.33% 8.16% 8.16% 12.66% 14.81% 4.80% 9.99% 6.08% Technolog y (XLK) 0.88% 2.51% 2.51% 4.19% 12.72% 7.52% 8.76% 0.79% Utilities (XLU) 2.21% 7.14% 7.14% 11.60% 13.23% 3.97% 11.75% 5.51%
  6. 6.     6  6   Section I – B Industry Analysis The Coca-Cola Company competes within the beverage industry, but more specifically the soda production, juice production, and bottled water production industries. This industry analysis focuses on the United States market and does not consider Coca-Cola’s worldwide distribution system and emerging market growth opportunities. The data and outlook for the following industry analyses was found on IBISworld. Soda Production The soda production industry within the United States is composed of firms that produce soda by blending various ingredients with carbonated water, package and distribute these beverages for resale. The soda production industry does not include still beverages, carbonated water, and functional beverages such as energy drinks. The major competitors within the industry are The Coca-Cola Company, PepsiCo Inc, and Dr. Pepper Snapple Group Inc; these top competitors control 65.4% of the market. The soda production industry within the United States is currently in the decline stage of the industry life cycle. Per capita soda consumption has been declining since 2004 and is expected to continue to decline as consumers within the United States increase their concerns over health. As a result the soda production industry is projected to contract over the next ten years at an annualized rate of 1.4%. There has been some growth within the industry with new product introductions such as dry soda, but the growth resulting from new products is not projected to outpace the decline in consumer consumption. Consolidation within the soda production industry is projected to continue as the largest firms compete to maintain market share as revenue is expected to decline. The soda production industry within the United States has a high level of competition. Competition is expected to increase over the next five years due to new entrants into the industry and price pressure from the large competitors as they capitalize on their efficiencies from consolidation. Established competitors in the industry have a competitive advantage due to the range of products they offer. As consumer preferences change, the large established competitors will be in a more advantageous position in comparison to the newer smaller niche firms. Despite elastic prices within the industry, established firms are able to markup up prices as they capitalize on product
  7. 7.     7  7   differentiation through brand loyalty and packaging design. The large competitors invest heavily in advertising and marketing to create brand loyalty amongst consumers. As a percentage of total revenue, advertising and marketing within the soda production industry is three times more expensive than the average industry sector. Advertising and marketing is expected to increase as firms try to stimulate demand for soda products. Increased marketing expenses and declining revenue will lower profits over the next ten years. The soda production industry also experiences high external competition through increased substitute products. Substitutes for soda include beer, wine, coffee, tea, juice, and energy drinks. Over the last five years the juice production industry has reduced the soda production revenue by providing consumers with direct substitutes for soda. These substitutes are in line with the consumers’ interest in healthier alternatives. The competition between the two industries is projected to increase. In addition to the juice substitutes, companies such as Starbucks have introduced more convenient in home methods of coffee and tea consumption. Overall, external competition with the soda production industry is expected to increase. High barriers to entry due to market saturation and regulation risks also characterize the soda production industry. The soda production industry is currently at risk of new labeling requirements by the FDA and higher sales tax on drinks that contain large amounts of caffeine and sugar. Firms within the industry are also at risk of rising commodity prices, specifically sugar, cocoa, aluminum and plastic. Juice Production The juice production industry is composed of firms that manufacture fruit juices, functional drinks such as sports and energy drinks, ready-to-drink coffee and tea. The industry does not include carbonated soda and unflavored water. The major competitors within the industry are PepsiCo Inc, The Coca-Cola Company and Dr. Pepper Snapple Group Inc. These top competitors combine for 68.1% of the market. The juice production industry has experienced rapid growth within the last five years and is in the growth stage of the industry life cycle. Growth of the industry is expected to continue at an annualized rate of 6.8%, outpacing the economy. The growth is a result of increased consumer disposable income. Impulse purchases and willingness
  8. 8.     8  8   to purchase more expensive alternatives to carbonated drinks are expected to increase with disposable income. In addition, consumer’s increasing awareness to health concerns will boost industry revenue. Internal competition within the juice production industry is high and increasing. Due to new and changing products, competitors must quickly react to new consumer preferences. Product differentiation is possible through brand loyalty, price and ingredients. Marketing and advertising is used extensively throughout the industry as competitors attempt to build brand loyalty amongst consumers. Competitors attempt to differentiate through unique products and flavors. Yet, differentiation is quite difficult since competitors react quickly to market trends. External competition has been declining as soda consumption has weakened and lower disposable income decreased consumption within the bottled water industry the most. The main risk to the juice production industry is the threat of increased regulation. Regulation of marketing has been increasing within the industry in addition to public scrutiny following the high levels of arsenic found in apple and grape juice. Other threats to the industry are volatile and increasing input prices. Barriers to entry within the industry are medium, as production costs and the initial investment are high. Yet there is opportunity for niche competitors within local markets. Consolidation within the industry is expected to increase as the major competitors seek to capitalize on the industries’ high growth. Bottled Water Production The bottled water production industry is composed of firms that fill bottles with purified water. The major competitors within the industry are Nestle, The Coca-Cola Company, and PepsiCo Inc. These top competitors combine for 86.6% of the market. The bottled water industry is currently in the maturity stage of the industry life cycle. Despite expected annualized growth of 2.1% to 2017, the industry’s industry value added is expected to decline as the economy grows faster than the industry. The decline in industry value added is a result of increased automation of production and not a decrease in bottled water consumption. Consumer consumption is expected to increase with an increase in disposable income as consumers recover from the economic downturn.
  9. 9.     9  9   Competition within the bottled water industry is high. Firms within the industry compete on price and brand loyalty. Consumers tend to like a consistent taste to water, thus firms compete to match consistency within their products to earn brand loyalty. External competition with the bottled water industry is also high. Despite the decline in consumer consumption of carbonated soft drinks, juice consumption and consumption of direct substitutes to bottled water have increased. As consumer disposable income declined, consumers turned to alternatives such as tap water and filtered water products. The bottled water industry is at the risk of increasing plastic prices, increased consumer concern for environmental issues, and increased regulation by the EPA and FDA. The bottled water industry has high barriers to entry due to water regulation, technological change, and consumer brand loyalty. Chapter II – Qualitative Analysis for the Firm Content 2020 The Coca-Cola Company has announced a revolutionary marketing strategy with the goal of doubling the size of the company by 2020 as seen in prizi presentation posted on Youtube. The plan of content 2020 is to utilize content marketing and engage consumers in a more dynamic fashion. Content 2020 focuses on two main concepts, liquid and linked. Liquid refers to marketing content that makes the consumer want to send the content to others. Coca-Cola plans on creating content so remarkable that consumers can’t wait to share the content with more people. Linked refers to the content remaining close to the underlying business goals of the organization. Through liquid and linked marketing, Coca-Cola believes they will be able to increase brand loyalty and thus drive consumer consumption of their products. Another key aspect of content 2020 is the 70/20/10 plan. The 70/20/10 plan is an idea of how to divide their marketing budget into different marketing concepts. Seventy percent of Coca-Cola’s budget will be utilized for low risk, historically effective content. Twenty percent will be utilized for spin off material that is more detailed. The final ten percent will be used for high-risk content that is revolutionary and could have tremendous rewards or fail to be effective. The goal of content 2020 is to double the size of the Coca-Cola Company by increasing brand loyalty through content marketing. Content 2020 shows an initiative by
  10. 10.     10  10   the management of Coca-Cola to focus on future growth potential while not jeopardizing current strengths of the firm. It is to early to tell if content 2020 will translate into higher sales, but the project at least shows that management is focused on long run growth and not just short-term profits. Market Share One of the strongest assets of the Coca-Cola Company is the company’s market share of the soda production, bottled water production and juice production industries. The Coca-Cola Company’s market share of these three industries can be seen in the charts below. The Coca-Cola Company currently holds a 32.7% market share of the soda production industry, 21.6% market share of the bottled water production industry and 26.8% market share of the juice production industry. The Coca-Cola Company’s large market share allows the company to earn above average returns within each industry. The large market share is attributed to strong brand loyalty amongst consumers, efficiencies developed within the production process, and strong product placement. Although the soda production industry within the United States is projected to contract in the future, the large market share will allow the Coca-Cola Company to generate profits within the industry and invest within the expanding juice production industry. In addition to
  11. 11.     11  11   investing in emerging markets such as the BRIC nations and others in which soda, juice and bottled water consumption is growing faster than the United States. Horizontal Integration In 2010 the Coca-Cola Company purchased the North American operations of the largest Coca-Cola bottling company, Coca-Cola Enterprises as reported by Burritt and Stanford of Bloomberg. The purchase was shortly after PepsiCo Inc purchased a portion of bottling operations from one of their largest bottling companies. The purchase by Coca-Cola was driven by the intent to lower costs by bringing the bottling operations in house. Although the purchase may result in lower costs and higher profits, the move does not come without integration risks. The Coca-Cola Company is now more invested in the beverage industry within the United States, thus an exit due to lower than anticipated demand will be more costly. Product and International Diversification The Coca-Cola Company is quite diversified within the beverage industry and globally. Coca-Cola products are consumed within over 200 countries as reported by Morningstar. Thus, the Coca-Cola Company is not dependent upon any one particular country or region. This reduces the company’s risk to country specific recessions and slow growth. Coca-Cola is building brand loyalty within emerging markets which will likely lead to increased growth over the future. Specifically, Coca-Cola plans on investing five million dollars in India within the next seven years as reported by Gulati and Ahmed of the Wall Street Journal. The Coca-Cola Company owns over 500 different brands as noted on the Coca- Cola Company official website. These products include classic Coca-Cola soda, Georgia ready to drink chilled coffee, DASANI bottled water, Bacardi Mixers, Vitaminwater, Full Throttle energy drinks and Simply Orange juice. Diversification of products allows the firm to position themselves for continued growth. As one industry may diminish, such as the soda industry within the United States, another industry may growth quickly, such as the juice industry.
  12. 12.     12  12   Chapter III – Quantitative Analysis of the Firm Section III – A Liquidity Ticker   Company  Name   Current  Ratio   Quick  Ratio   Net  Working   Capital  to  Assets   DPS   Dr.  Pepper  Snapple  Group   Inc   1.10   0.80   0.012   KO   The  Coca-­‐Cola  Company   1.10   0.80   0.047   NSRGY   Nestle   0.90   0.60   -­‐0.014   PEP   Pepsico  Inc   1.10   0.80   0.022   Source: Yahoo! Finance & Bloomberg Businessweek Liquidity ratios express a firm’s ability to pay off liabilities within a short time period. The Coca-Cola Company’s liquidity ratios are very similar to their competitors. No company within the industry has a strong advantage of liquidity, but Nestle is at a disadvantage. Nestle has a current and quick ratio less than one. Thus, Nestle is not able to meet their current obligations with their current assets. The difference in liquidity ratios between Nestle and the competition may have to do with the broader industries Nestle competes in as compared to Dr. Pepper Snapple Group, The Coca-Cola Company and PepsiCo Inc.. The Coca-Cola Company does have a higher Net Working Capital to Asset ratio than their competitors. Asset Utilization Ticker   Company  Name   Receivables   Turnover   Inventory   Turnover   Fixed-­‐Asset   Turnover   Total  Asset   Turnover   DPS   Dr.  Pepper  Snapple  Group   Inc   10.50   12.20   5.10   0.70   KO   The  Coca-­‐Cola  Company   9.90   6.00   3.30   0.60   NSRGY   Nestle   9.50   5.30   3.60   0.80   PEP   Pepsico  Inc   11.00   8.40   3.40   0.90   Source: Yahoo! Finance & Bloomberg Businessweek Asset Utilization ratios examine a firm’s efficiency. The Coca-Cola Company’s asset utilization ratios are within the range of their competitors. The Coca-Cola Company has a low inventory turnover as compared to its competitors. Although the Coca-Cola Company is not the lowest, this could be problematic since it indicates a slower
  13. 13.     13  13   replacement of inventory due to either lower sales or high inventory levels. Dr. Pepper Snapple Group Inc. has a large advantage as compared to its competitors in inventory turnover and fixed-asset turnover. Overall, the firms within the industry are within line to one another. Debt Utilization Ticker   Company  Name   Total  Debt   to  Equity   Total   Liabilities   to  Total   Assets   Times   Interest   Earned   DPS   Dr.  Pepper  Snapple  Group   Inc   123.00   74.50   N/A   KO   The  Coca-­‐Cola  Company   98.30   61.50   30.75   NSRGY   Nestle   44.50   50.40   23.48   PEP   Pepsico  Inc   126.60   70.00   10.24   Source: Yahoo! Finance & Bloomberg Businessweek The Coca-Cola Company is within the range of their competitors in regard to debt utilization ratios. The Coca-Cola Company is on the lower end of the Liabilities to Asset ratio, which indicates that the Coca-Cola Company has fewer liabilities to assets in comparison to their competitors. This places Coca-Cola at an advantage as they have lower debt levels in comparison. The Coca-Cola Company has an AA- credit rating as reported by Morningstar. The high credit rating reiterates the Coca-Cola Companies strong financial position. Nestle’s Total Debt to Equity ratio is concerning, since the low ratio signifies a large amount of equity as compared to competitors. This could be a drag on retained earnings since equity is more expensive for a company than debt. Profitability Ticker   Company  Name   Gross   Profit   Margin   ROA   ROE   DPS   Dr.  Pepper  Snapple  Group   Inc   58.30%   7.50%   27.69%   KO   The  Coca-­‐Cola  Company   60.32%   8.44%   27.92%   NSRGY   Nestle   47.58%   7.51%   18.30%   PEP   Pepsico  Inc   52.22%   7.97%   28.70%   Source: Yahoo! Finance & Bloomberg Businessweek The Coca-Cola Company has an advantage of higher profitability ratios than their competitors. The Coca-Cola Company has the highest gross profit margin, ROA and second highest ROE. Although the differences are not significant, the higher profitability
  14. 14.     14  14   ratios indicate higher sales revenue and cost control. Higher sales may be due to Coca- Cola’s ability to price their products higher than the competition due to strong brand loyalty within the soda industry. Cost control is a initiative of the company as seen by the acquisition of the North American bottling operations in order to lower production costs. Section III – B Ticker   Company  Name   Trailing   P/E   Forward   P/E   Price/Sales   per  share   Price/Book   Value  per   share   PEG   DPS   Dr.  Pepper  Snapple   Group  Inc   15.71   14.01   1.57   4.17   2.60   KO   The  Coca-­‐Cola  Company   20.58   17.40   3.73   5.47   2.11   NSRGY   Nestle   20.57   17.42   2.37   3.60   3.85   PEP   Pepsico  Inc   20.27   16.67   1.86   5.44   2.48   Source: Yahoo! Finance & Bloomberg Businessweek The Coca-Cola Company has a high price/sales per share ratio and a low PEG ratio as compared to its competitors. The higher price/sales per share ratio is concerning but the low PEG ratio indicates that the company is less expensive in comparison to its growth rate than the competition. The main concern within the price ratios is the trailing and forward P/E. All of the companies above have a lower forward P/E ratio as compared to the trailing P/E ratio. This indicates that analysts predict slowed growth for the entire beverage industry. In addition, the Coca-Cola Company, Nestle and PepsiCo Inc all have trailing P/E ratios higher than the overall market. The high P/E ratio is likely a direct result of the recent high growth within the consumer staples sector and juice production industry. Chapter IV – Recommendation Section IV – A Technical Analysis 50 and 200 Day Moving Average As seen in the one-year chart with the 50-day and 200-day moving average below, Coca-Cola is currently appreciating in value. The 50-day average is above the 200-day average, indicating that the value of the Coca-Cola Company stock is increasing. This is a bullish indicator, as the buy signal was within the last month.
  15. 15.     15  15   Source: Yahoo! Finance Bollinger Bands Bollinger Bands measure the moving average of the stock price and set an upper band and lower band two standard deviations away from the average. Technical analysis through the use of Bollinger Bands indicates that the Coca-Cola Company is a slight sell as the stock is closer to the upper band than the lower. The analysis can be seen in the charts below. Source: Yahoo! Finance Seen above the Coca-Cola Company recently broke the upper band indicating a sell signal. Within the last few weeks, the stock has fallen and recovered, moving towards the middle of the Bollinger Band.
  16. 16.     16  16   Source: Yahoo! Finance Above is a closer examination of the Coca-Cola Company through the use of Bollinger Bands. The recent sell signal can be seen shortly after March 22, when the stock price exceeded two standard deviations of the moving average. Resistance Upon analysis of the 1-month price movement of the Coca-Cola Company, a resistance level can be found. During the recent upward movement, the stock peaked at $40.69 on March 26, which was the sell signal through the use of the Bollinger Band. Since the peak, the stock fell to $40.22 and slowly rose to a second peak slightly above the previous at $40.71. The stock has since fallen and is now appreciating towards the resistance level. If the stock is able to break the resistance level look for the volume to increase and the stock price to quickly appreciate.
  17. 17.     17  17   Source: Yahoo! Finance Volume The amount of trading volume can often be an indicator of the investor’s outlook. During the recent upward movement of the price of KO, the volume of trades only broke the moving average twice, and within the last two weeks the trading volume has been slowly declining. This is not a positive indicator for future price appreciation. Source: Yahoo! Finance
  18. 18.     18  18   Section IV - B CAPM Model Required Return = Risk Free Rate + Beta (Expected Market Return – Risk Free Rate) RR = 1.69% + 0.37 (11% - 1.69%) RR = 1.69% + 3.4447% RR = 5.1347% Given the low yield on the 10-year Treasury bill and Coca-Cola’s low beta, the required return is annualized rate of just 5.1347%. Summarization and Recommendation The Coca-Cola Company is a part of the consumer staples sector. The consumer staples sector is a lower risk sector since growth is lower and more consistent. This means that the consumer staples sector is more adequate for conservative investment. Yet recently, the consumer staples sector has returned the highest growth within the last quarter, month and YTD as of February 28, 2013. The Coca-Cola Company competes within the beverage industry. More specially, Coca-Cola competes within the soda production, juice production and bottled water production industries. Within the United States, the soda production industry is expected to contract. Despite the contraction, the Coca-Cola Company’s large market share will allow the company to use profits to invest in the booming juice production industry. In addition, the Coca-Cola Company is focused on long term growth through content marketing and investment within emerging markets. The Coca-Cola Company’s 500 plus brands within over 200 countries provides the company with sufficient diversification to sustain growth and minimize exposure to region specific economic downturns. The Coca-Cola Company has a strong financial position and strong quantitative ratios as compared to its competitors. Coca-Cola’s strength is their profitability ratios. The Coca-Cola Company has the highest gross margin, ROA and second highest ROE. The firm is in a strong position to pay current liabilities and has a high quality credit rating. The cause for concern is the Coca-Cola’s growth rate as predicted by analysts. The trailing P/E ratio is higher than the forward P/E; meaning future growth is expected to be less than previous growth. In addition, the Coca-Cola Company’s trailing P/E ratio is higher than the overall market.
  19. 19.     19  19   Technical analysis of the Coca-Cola Company shows that the firm has recently been appreciating. Short-term future appreciation is questionable as the stock seems to have hit a resistance point at $40.71 and volume has not been increasing despite recent appreciation. With a low required return of 5.1347%, future growth potential within the juice production industry in the US, investment within emerging markets, and management’s focus on long run growth, the Coca-Cola Company is a good long-term, conservative investment. The Coca-Cola Company’s strong market share and profitability will benefit investors with dividends and potential growth through funding expansion of their market share within growing industries. The Coca-Cola Company should be bought for safety of principal and income. The Coca-Cola Company issues a current dividend of 1.12 resulting in a dividend yield of 2.7%. In addition, the Coca-Cola Company has a low beta since the company has high diversification and market share within established profitable industries. The Coca-Company should be considered as a portfolio anchor within the volatile equity market.
  20. 20.     20  20   Works Cited Ahmed, Rumman and Gulati, Nkhil. "India Has 1.2 Billion People but Not Enough Drink Coke.” The Wall Street Journal. Web 11 Feb 2013. "All Brands." The Coca-Cola Company. Web. 6 Feb 2013. “Bottled Water Production Industry in the US.” IBISWorld. Web. 6 Apr 2013. Burrit, Chris, and Duane Standford. "Coca-Cola to Purchase Bottler in $12.3 Billion Deal." Bloomberg. 25 Feb 2010. Web. 11 Apr 2013. "Coca-Cola Co KO." Morningstar. Web. 11 Apr 2013. Coca-Cola Content 2020. 2012. Youtube. Video. Web. 11 Apr 2013. "Consumer Staples SPDR – XLP." Select Sector SPDRs. Web 6 Feb 2013. “Dr. Pepper Snapple Group Inc (DPS:New York).” Bloomberg Businessweek. Web 3 Apr 2013. "Dr. Pepper Snapple Group (DPS) Profile." Yahoo! Finance. Yahoo!. Web. 6 Feb 2013. “Juice Production Industry in the US.” IBISWorld. Web. 6 Apr 2013. Mullarkey, Thomas. "Coke's Global Brands and Distribution Network are Unmatched." (2013). Morningstar. Web. 7 Apr 2013. "Nestle (NSRGY) Profile." Yahoo! Finance. Yahoo!. Web. 6 Feb 2013. “Nestle Sa-Spons Adr For Reg (Nsrgy:Otc Pink - Current Information.” Bloomberg Businessweek. Web 3 Apr 2013. “Pepsico Inc. (PEP:New York).” Bloomberg Businessweek. Web 3 Apr 2013. "Pepsico Inc. (PEP) Profile." Yahoo! Finance. Yahoo!. Web. 6 Feb 2013. "Soda Production Industry in the US." IBISWorld. Web. 4 Apr 2013. "The Coca-Cola Company SWOT Analysis." Company Profile: The Coca-Cola Company. Business Source Complete. Web. 6 Feb 2013. "The Coca-Cola Company Heritage Timeline." The Coca-Cola Company. Web. 6 Feb 2013 “The Coca-Cola Company (KO:New York Consolidated).” Bloomberg Businessweek. Web 3 Apr 2013. "The Coca-Cola Company (KO) Profile." Yahoo! Finance. Yahoo!. Web. 6 Feb 2013.

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