by Tom Taulli | July 17, 2012 12:42 pm
This morning Coca-Cola (NYSE:KO) announced yet another solid earnings report. Net income came to $2.79 billion, or $1.22 per share, and revenues increased by 2.7% to $13.09 billion. The Street was looking for net income of $1.19 a share and revenues of $12.99 billion. On the news, the shares of Coca-Cola are up about 1.5%.
No doubt, the company has been a standout investment over the years. As for 2012, the stock is up about 11%.
But can Coca-Cola keep up the momentum? To decide, here’s a look at the pros and cons:
Big Moat. Coca-Cola, simply put, is the world’s largest beverage company. It has over over 500 brands and 3,500 beverage products which are distributed across more than 200 countries, providing 1.8 billion servings per day. Yeah, you get it. Plus, according to Interbrand, the brand is No. 1 in the world, with a value of nearly $72 billion. Fortune also ranked the company No. 6 as the world’s most admired companies.
Innovation. With its huge cash flows, Coca-Cola has the luxury of investing substantial amounts in new systems, brands and technologies. For example, the company has entered a venture with Google (NASDAQ:GOOG) to experiment with using smartphones to buy beverages. Another innovation is the PlantBottle packaging, which is fully recyclable. In fact, it has been a key factor in the growth of the Dasani brand. Even Heinz (NYSE:HNZ) is using the technology for its 20-once bottles of ketchup.
Emerging Markets. Over the decades, Coca-Cola has spent billions to get a foothold in these markets — and it has been paying off. In the latest quarter, Eurasia and Africa saw volume growth of 12%.
Macroeconomy. In the second-quarter, the company saw weakness in Europe, with volume down by about 4%. Plus, with the slowdown in economic growth in both the U.S. and even China, it could be tough for Coca-Cola to continue to increase its prices and bolster its volumes.
Competition. Over the past few years, Coca-Cola has been taking market share away from Pepsi (NYSE:PEP) — but this may start to change. Pepsi is now focusing more attention on its beverage business and plans to ramp-up marketing expenditures. Coca-Cola must also deal with other tough competitors like Monster Beverage (NASDAQ:MNST) and Dr. Pepper Snapple Group (NYSE:DPS).
Consumer Changes. In the U.S., there have been growing concerns about the health effects of carbonated beverages. So far, the impact has been small but that could change in the coming years
Even with the economic headwinds, Coca-Cola’s business should remain steady. After all, the company’s products are a global staples.
And as the financial markets remain volatile, this beverage giant will definitely be a safe-haven for investors. Consider that it has raised its dividend for 50 consecutive years, with the current yield at an attractive 2.6%.
So in light of all these factors, the pros outweigh the cons on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
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