The Coca-Cola Company (KO): Sweet Returns in the Making Thanks to Emerging Markets

Coca-Cola has many competitors, but because their brand is among the strongest in the world and because they have the biggest global distribution network, no competitor represents a real threat. PepsiCo is probably one of the few companies that can be compared with The Coca-Cola Company (NYSE:KO) in terms of scale of network distribution and sales. Both companies have a strong free cash flow, pay high dividends and have a similar dividend payout ratio (DPR): Coca-Cola with 54.8% and PepsiCo, Inc. (NYSE:PEP) with 55% respectively. However, keep in mind that The Coca-Cola Company (NYSE:KO) is by far the established leader in the carbonated soft drink category, and has stronger presence in many key emerging markets.

Coca-Cola’s weak point is probably the energy drinks category. The company has tried hard to enter this market in the past 10 years, with modest results. On the other hand, Monster Beverage Corp (NASDAQ:MNST), with fewer resources, became the world’s second most popular energy drink manufacturer in less than five years, and still has abundant room for growth in international markets. Many have pointed out the advantages that acquiring an early star in the energy drinks segment, like Monster Beverage Corp (NASDAQ:MNST) before its IPO, would bring to The Coca-Cola Company (NYSE:KO)’s overall business. I don’t think Coca-Cola would consider buying Monster Beverage Corp (NASDAQ:MNST) at this point, but it’s good to know that with $16 billion in cash, Coke is prepared to buy any early star in this segment in the future, if necessary.

A final word on momentum

The recent earnings call came out with a slight decline in income, from 61 cents a share in the same period a year ago to 59 cents a share. This decline could be cyclical, as unusually poor weather conditions in the latest quarter combined with bad macroeconomic environment might have had a negative impact. The upside is that this makes the stock even more attractive, as I expect some bearish momentum to bring the price down for some days.

The article Coca-Cola: Sweet Returns in the Making Thanks to Emerging Markets originally appeared on Fool.com and is written by Adrian Campos.

Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends The Coca-Cola Company (NYSE:KO) and PepsiCo. The Motley Fool owns shares of PepsiCo, Inc. (NYSE:PEP). Adrian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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