Coca-Cola Has a Prosperous 2013 Ahead of It
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coca-Cola (NYSE: KO) is arguably one of the most common household names in the world. Recognized as the world’s most valuable brand, the beverage bellwether has managed to extend its reach to almost all markets in the world. Nevertheless, its competitive landscape is changing. Competitors like Pepsi (NYSE: PEP) no longer provide the leeway that they were typical of providing. What’s even more is the introduction of regulators and health initiatives dubbed “anti-obesity campaigns,” both of which have greatly affected consumption in the U.S. With so many factors in play, it would be out of order to presume that Coca Cola’s 2013 will automatically be rosy. Nonetheless, I believe that there are several notable factors that will fuel a relatively prosperous 2013.
Adapting the winning formula
Following what I could describe as a changing sector landscape, all beverage makers have been compelled to adapt to a winning formula. What exactly is this winning formula?
In light of the rising health awareness triggered by the troubling obesity problem in the U.S., alongside other markets, beverage makers have been forced to put more effort into low calorie products; this explains the heavy marketing surrounding Coke Zero, Coca-Cola’s sugarless Coke drink. In addition, disrupted distribution in the U.S. has compelled beverage makers to extend their reach beyond U.S. soil. As such, today’s canny beverage maker not only has to take an inclination toward less sugary products but also has to bolster sales on the international level – this is the winning formula that I am talking about.
Comparing Coca-Cola with Pepsi, the former is evidently adapting this “winning formula” better. While Pepsi also has its own healthy alternatives, it is yet to expand its global footprint in the fashion that Coca Cola has. This gives Coca Cola a definite edge. In the same breath, the beverage bigwig has latched its expansion goals onto its ambitious “Vision 2020” program, a program geared toward doubling sales by 2020. In my line of thought, the objectives inherent in the program are attainable. Coca Cola has a very good position in emerging markets as well as the Middle East, both of which are deemed to present high-growth opportunities. There is lower per capita consumption in these emerging markets relative to the U.S. market and Coca-Cola could greatly increase international sales by establishing a stronger presence in these markets. Also, there is some real daylight between Coca-Cola’s brand value and Pepsi’s. The latter’s brand is worth $16.5 billion while Coca-Cola’s brand soars well above $77 billion; echoing the sheer dominance of Coca-Cola.
Going by analysts’ estimates, Coca-Cola is poised to grow at a rate of 8.2 percent per annum for the next half decade. Considering Coca-Cola’s recurrent trend of beating estimates, I can comfortably say that the heavyweight will be a growth story in the coming years.
Track record matters
In an indirect attempt to fence out smaller competitors like Dr. Pepper Snapple Group (NYSE: DPS), Coca- Cola has done a lot to maintain and accent its track record, particularly so in earnings per share growth and dividend yield. While Coca-Cola’s current yield of 2.8 percent is lower relative to Dr. Pepper, which extends a yield of 3.10 percent, its 50 year record in dividend growth offers a more secure investment.
Here is a chart displaying the titan’s earnings per share growth over the years, dating back as far as 1980.
From the graph, it is evident that Coca-Cola’s EPS has been on a steady increase over the years, save for the isolated event in 2000 coupled with a slight dip at the wake of the 2008 recession.
What does this trend signal? It demonstrates Coca-Cola’s impressive ability to deliver even when broader market conditions weigh in on it (as witnessed in 2000 and after the dreaded 2008 financial crisis). Investors are looking forward to this ability in 2013 (assuming fiscal relief doesn’t gain momentum). I am of the opinion that the uncertain economic conditions expected in 2013 will inevitably cause a dip in Coca-Cola’s share price. If this happens, 2013 will be a good year to establish a position in, or add more of, Coca-Cola. At the fall of the year, investors who made an in on the stock at the beginning of the year will cash in on their wise investment decision.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!