Coca-Cola Stock Has Lost Its Fizz

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Coca-ColaFor Coca-Cola (KO), sales have been flat in the U.S. while the company has contended with higher taxes and a tougher regulatory environment. So Coca-Cola 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 Coca-Cola’s big bet on emerging markets signal that it’s time to buy?

Company Profile

With a whopping 17% market share, Coca-Cola is the undisputed king of soft drinks. In its 125-year history, the company has created 3,500 kinds of beverages, including Dasani, Fanta, Minute Maid and Nestea. The company has about 151,000 employees that serve 200 countries worldwide.

Value Buzz

Now if there’s good thing about owning Coca-Cola stock  it’s that this stock yields 3.2%—one of the most generous dividends in the Soft Drinks industry. Coca-Cola has paid a quarterly dividend since 1920 and has hiked up its dividend for fifty years running. KO goes ex-dividend Wednesday, March 12–shareholders of record will receive 30.5 cents per share on April 1. The dividend, plus the company’s ongoing $18.9 billion share repurchase program, suggests that Coca-Cola is committed to returning value to its shareholders.

Future Outlook

But while the dividend and stock buyback programs may be a big bonus for value investors, as a growth investor I see owning Coca-Cola stock as more trouble than it’s worth. For the first quarter Coca-Cola is expected to see sales slip 3.2% and earnings fall 2.2% compared with the year ago quarter. And looking further ahead through the end of FY 2014, Coca-Cola is headed towards flat sales and earnings growth.

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, the company isn’t growing fast enough to justify a buy recommendation from me.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock has slipped over the past several months, falling from a buy in November to a D-rated Sell.

What’s keeping this stock down is a combination of nonexistent buying pressure and mixed fundamentals. KO currently receives an F for its Quantitative Grade. And despite its position as a market leader, lately sales growth, operating margin growth, and earnings momentum have been slipping.

In fact, of the eight fundamental metrics I graded this stock on, four of them were C-rated and three were D-rated. The lone exception was return on equity, which was A-rated. So Coca-Cola stock  receives a C for its Fundamental Grade, placing it firmly in sell territory.

Bottom Line: As of this posting I consider Coca-Cola stock a D-rated Sell.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

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