Coca-Cola Enterprises fattens balance sheet

The largest Coke bottler is attractively priced, but is the stock a classic value trap?

By Jamie Dlugosch Feb 10, 2010 12:46PM

Coca-Cola Enterprises (CCE) may or may not be the real thing. But one thing that is real is that the largest bottler of Coca-Cola (KO) drinks can still generate a ton of cash for its balance sheet.

 

This morning CCE reported earnings of 22 cents per share in the fourth quarter. That number met analyst expectations, but the revenue number of $5.12 billion was a bit short of the $5.28 billion estimate.

 

Citing the proverbial lingering economic weakness, CEO John Brock noted tough competition. Interestingly, KO on Tuesday had reported strong revenues in the fourth quarter that also exceeded expectations.

 

Both CCE and KO got a boost from overseas that helped to offset declines in North America. Clearly the U.S. market remains a bit unsettled for both companies. (10 stocks that are the real thing)

 

At the bottling company, there does not appear to be much to get excited about with this report. CCE did confirm 2010 guidance it had given to the investment community in December, but those numbers offer only single-digit earnings growth.

 

In an effort to offer something to investors, CCE did note a plan to repurchase up to $600 million of stock by the end of 2010. That bone may help boost shares that trade for a modest 11 times forward earnings in addition to paying a 1.6% dividend

 

These companies can be such the tease. The valuation pulls you in, but the future always leaves you wanting. That’s what they call a value trap.

 

The soft drink business may be going the way of cigarettes. Health issues have been building around high sugar content drinks for years. Could it be that the spotlight on obesity, diabetes and other ailments associated finally be negatively impacting sales?

 

This past week we now learn that consuming two soft drink beverages per week increases the risk of pancreatic cancer. What lurking disease awaits those who swig the beverages offered by CCE?

 

Well, does it really matter?

 

I doubt it as evidenced by the number of people that still smoke cigarettes. No, CCE can reaffirm guidance in confidence knowing that its customers are addicted to its products. Nothing is likely to change that fact.

 

Even if sugar drinks spell doom for the user, a switch to diet products no matter the taste will protect Coke. The only problem for investors is where does the growth come from if one is to believe the stock is no value trap?

 

Perhaps the answer is in alternative products. As a fan of the hit show, American Idol it was more than obvious to see that the judges were not drinking Coke for this year’s version of Hollywood week.

 

Instead they were drinking Vitamin Water Zero. You can be sure Coke executives noticed. I’m not a fan of big company stocks in this market. I much prefer smaller stocks that can grow quickly.

 

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