Inside Wall Street: Coke is the stock for all seasons

Don't just drink it, buy it, say the pros.

By Gene Marcial Apr 26, 2012 2:09PM

Coca-Cola (KO) leads corporate America with its global reach, fueled by its strong and steady growth momentum. The company's decision this week to split its stock is the latest move to demonstrate its continued agility -- and enhance shareholder value.

 

Coke is a brand that's been around a long time, it's true, but it remains an innovative and spirited company. Take a look at its stock.


Its steady rise over the decades proves it isn't aging or limping. In fact, its price continues to hit record highs. It posted a high of $75 a share just yesterday, Apr. 25, at $75.05 a share, before closing a tad lower, at $74.93.

 

At this point, you can't just pooh-pooh the stock as having already hit its peak. After all, it demonstrated surprising vigor and vitality after trading as low as $37 a share in 2009 -- from which the stock has now doubled. Some investors are betting it could double again from its current price over the next three to five years for fundamental and technical reasons.


The stock split, expected to be approved and implemented sometime in the next few months, won't alter the value of the stock at all. But there is one definite advantage to splitting a high-flying, big-cap stock: It improves the appeal of the stock to millions of individual investors who can't afford high-priced equities. That's a big switch, from being just a favored stock of large, cash-laden institutional investors.


The stock split, in essence, creates another army of Coke investors. These investors will like not only the brand now, but also its blue-chip stock.

  

The drink enjoys worldwide popularity, keeping the brand bright and alive. Hence, the stock's solid performance all these many years. Considering the recent global economic headwinds,  that's quite an achievement. In the first quarter of 2012, Coca-Cola continued to outperform the broader industry, "gaining global value and volume in every beverage category in which it competes," notes Michael J. Branca, the U.S. beverage and tobacco industry analyst at Barclays Capital.

 

Coca-Cola's better-than-expected 5% global volume growth, says Branca, was geographically broad-based, with solid gains in developed markets such as the U.S., Germany, and Japan, which management expects to continue growing at a low, single-digit pace, and stronger volume advances in developing and emerging markets. He notes that there would be some moderation in certain markets, including China.  

 

The favorable first-quarter results prompted Branca to boost his 2012 earnings estimates to $4.10 a share from $4, and his 2013 forecast to $4.50 from $4.40. The analyst also raised his 12-month price target to $81 a share from $74.

 

"We expect the stock to continue to motor forward based on improving top-line growth, widening structural competitive advantage, and evidence of emerging operating leverage," Branca says. Bottom-line, his outlook is for Coke to deliver broad-based international case volume growth and positive global price/mix, while widening its global value market share.

 

Esther Kwon, equity analyst at S&P Capital IQ, also high on Coca-Cola, raised her price target by $8 a share, to $86. "We favor KO on broad geographic footprint, healthy growth prospects, and cash-flow generation," she says.

 

So don't just drink Coke, buy the stock now, say the pros, as it's surely a long-term investment gem that's worth the money. Buy Coca-Cola for its accelerating upward momentum, if nothing else. Coke is not just the big thing in beverages, it's the stock for all seasons.     


Gene Marcial


Gene Marcial wrote the column "Inside Wall Street" for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.

 

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