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Should I Buy KO Stock? 3 Pros, 3 Cons

Without major improvements, the company could continue to drift

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Coca-Cola (KO) has been treading water, lately.

ko-stock-coca-cola-stockDuring the past year, KO stock has been essentially unchanged while the S&P 500 posted a gain of about 20%. Pepsi (PEP) has not done much better either, up about 4% during the same period.

KO’s fourth quarter results only reinforced the company’s woes. Revenues declined by 4% to $11 billion, which compared to the Street consensus $11.3 billion. A big driver was a 1% decline in sales volumes in North America.

So, will the problems continue? Or might KO stock be a bargain at current levels? To see, let’s take a look at the pros and cons:

KO Stock Pros

Global powerhouse: Coca-Cola is a tremendously valuable global brand, which allows the company to charge premium prices for its products. Consider that 16 brands bring in $1 billion or more in annual revenues. Distribution is also another massive competitive advantage and a key for KO stock. For example, the company sells more than 500 brands in more than 200 countries and 23 million retail locations.

Bold bets: Given the scale of Coca-Cola, the company needs to find huge market opportunities to move the needle. The latest move was a $1.25 billion investment in Green Mountain Coffee Roasters (GMCR), which is the maker of Keurig coffee brewers. In the deal, both companies plan to launch a single-serve system for cold drinks. No doubt, this is an ambitious move and full of risks. But KO can leverage its brand expertise and distribution while GMCR will offer its proven technologies. Although, KO may ultimately buy GMCR outright. The company has done this with other investment deals, such as for Zico and Honest Tea.

Financials: Even though growth has stalled, KO stock continues to be a cash machine. During 2013, the company generated $10.5 billion in cash from operations. To pump things up, Coca-Cola has also been more focused on realizing inefficiencies, with the plan to reduce costs by as much as $1 billion by 2016. The effort will include supply-chain optimization, system standardization and better resource allocation across the global organization. And for 2014, it plans to buy back anywhere from $2.5 billion to $3 billion in KO stock. The company has also been aggressive with its dividend, increasing its payout every year since the 1950s.

Article printed from InvestorPlace Media,

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