You Should Consider Buying Coca-Cola
Federico is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The soft-drink giant's stock has underperformed competition
- Consistent, middle-single-digit top-line growth predominantly driven by volumes (5% for financial year 2012 versus PepsiCo's 4.2% and AB-InBev's 4.7%).
- Emerging-markets exposure (comparable to AB-InBev, which dominates the business in Latin America, with a few exceptions).
- High margins, and strong cash-flow generation.
- The business is gaining share (against PepsiCo), and financial results have been strong across the globe.
Huge room for improvement
- The company has the option to create long-term shareholder value by optimizing bottling arrangements in the United States. Two years after the acquisition of Coca-Cola Enterprise's US assets, Coca-Cola has not presented any concrete plan for future refranchising of any of its bottling or distribution assets.
- In the US, Coca-Cola has a huge opportunity to eliminate the inefficiencies that have built up on the system over the past few decades. Assuming the company implements a system structure similar to the US beer industry, total savings easily go as far as $1.5 billion (the entire supply chain and route to market needs to be re-coordinated). We need to remember that by just streamlining operations, AB-InBev (with only 13 production facilities, against Coca-Cola's +130) generated $2.25 billion in savings from the Anheuser Busch acquisition.
- There is huge upside to Coca-Cola’s performance in China and Indonesia. During the last five years, these two markets accounted for 8% of Coca-Cola's volumes but 25% of group's volume growth (despite last year's stagnant growth in both markets).
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Federico Zaldua has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of 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!