We came across a bullish thesis on The Coca-Cola Company (KO) on Substack by Rijnberk InvestInsights. In this article, we will summarize the bulls’ thesis on KO. The Coca-Cola Company (KO)’s share was trading at $68.87 as of Feb 14th. KO’s trailing and forward P/E were 28 and 23.36 respectively according to Yahoo Finance.
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Coca-Cola (KO) has once again demonstrated its resilience and industry leadership with an impressive Q4 performance, significantly outperforming expectations and rival PepsiCo. The company’s ability to deliver strong organic revenue growth, expand margins, and drive solid EPS growth in a challenging environment highlights its operational excellence. Despite industry headwinds, including concerns over GLP-1 weight loss drugs, tariffs, FX pressures, and inflation, KO has successfully navigated these challenges, reinforcing its best-in-class status. The market rewarded this outstanding execution with a 5% share price increase, pushing KO’s valuation back toward premium levels and an 11% gain over the last month.
KO’s financial results were remarkable. Q4 revenue reached $11.5 billion, growing 6.5% year-over-year and beating consensus estimates by $800 million. More importantly, organic revenue growth soared by 14%, driven by a balanced mix of 9% pricing growth and 5% volume growth. These figures are particularly notable given that PepsiCo reported only 2.1% organic growth in the same period, highlighting KO’s superior execution. The company’s franchise system, which provides local market expertise and enables rapid adaptation to shifting consumer preferences, has played a crucial role in maintaining this competitive edge. KO also continues to dominate brand loyalty and marketing, with its campaigns, including its Christmas commercial, reinforcing consumer attachment to its products.
Despite inflation-driven pricing actions, KO still achieved positive volume growth, further underscoring its brand strength. The company’s ability to raise prices while maintaining demand stands in stark contrast to competitors that have struggled with volume declines. This brand resilience was reflected in KO’s margin expansion, with comparable gross margin increasing by 160 basis points year-over-year and operating margin improving by 90 basis points to 24%. Even with headwinds from bottler refranchising and FX fluctuations, the company delivered a 12% increase in reported EPS to $0.55, surpassing expectations.
KO’s strong financial health extends to its free cash flow, which grew 11% year-over-year to $10.8 billion, fully covering its dividend obligations while keeping net debt leverage at a conservative 1.8x EBITDA. The company’s dividend remains a key attraction, boasting a 2.87% forward yield, a 67% EPS payout ratio, and an impressive 62-year track record of consecutive increases. This steady, well-covered dividend further cements KO’s appeal as a defensive investment.
Looking ahead, KO’s 2025 guidance points to organic revenue growth of 5-6% and comparable EPS growth of 8-10%, reaffirming its ability to sustain strong performance. While currency headwinds are expected to impact reported EPS growth, the company’s long-term trajectory remains intact. Wall Street now projects solid revenue and earnings growth, reinforcing KO’s status as a premier blue-chip investment.
Following its recent rally, KO trades at approximately 23x forward earnings, aligning with its historical average valuation. While this reflects its high-quality business model, the current price offers limited upside. A long-term target price of $79 implies annualized returns of 5%, or closer to 8% when including dividends—decent but not quite compelling. For investors seeking a better margin of safety, a pullback toward $60-64 would present a more attractive entry point.
The Coca-Cola Company (KO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 69 hedge fund portfolios held KO at the end of the third quarter which was 68 in the previous quarter. While we acknowledge the risk and potential of KO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.