Unlike carbonation, sales have been flat in the U.S. for Coca-Cola (KO) due to higher taxes and a tougher regulatory environment. So, KO stock has taken a beating lately.
At the same time, Coca-Cola has big plan for emerging markets. By investing billions in China, India and Russia, Coca-Cola aims to reach $200 billion in sales by 2020!
Does KO’s big bet on emerging markets signal that it’s a stock to buy? Here’s why not:
Company Profile
With a whopping 17% market share, Coca-Cola is the undisputed king of soft drinks. In its 125-year history, Coca-Cola has created 3,500 kinds of beverages, including Dasani, Fanta, Minute Maid and Nestea.
Coca-Cola has about 151,000 employees that serve 200 countries worldwide. Now, if there’s good thing about owning KO it’s that this stock yields 3.1%. Coca-Cola has paid a quarterly dividend since 1920 and has hiked up its dividend for fifty years running. The dividend, plus Coca-Cola’s ongoing $18.9 billion share repurchase program, proves that Coca-Cola is committed to returning value to its shareholders.
Future Outlook
While the dividend and stock buyback programs may be big bonuses for value investors, I, as a growth investor, see owning KO as more trouble than it’s worth. For the current quarter, Coca-Cola is expected to see sales tick up just 1.5% and earnings remain flat year over year. Additionally, Coca-Cola is headed towards flat sales and earnings growth through the end of fiscal 2014.
The fact is that Coca-Cola is facing significant headwinds, such as obesity concerns and dwindling appeal among younger customers. So, while Coca-Cola is growing in emerging markets, it’s not growing fast enough to justify a “buy” recommendation from me.
Current Ratings
KO stock has remained a “D-rated sell” for 11 of the past 12 months. What’s keeping Coca-Cola down is a combination of nonexistent buying pressure and mixed fundamentals.
KO currently receives a “D” for its Quantitative Grade. Despite its position as a market leader, Coca-Cola’s recent sales growth (D), operating margin growth (C), and earnings growth (C) have been slipping. In fact, of the eight fundamental metrics I graded KO stock on, six of them were “C-rated” and one was “D-rated.” The lone exception was return on equity, which was “A-rated.” So KO receives a “C” for its Fundamental Grade, which places it firmly in “sell” territory.
As of this posting, September 12, I consider KO a “D-rated sell.”
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
