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Coca-Cola Needs Less Fizz in Its Products to Get More in Its Stock

Stocks in this article: KO PEP BRK.B

Even more distressing is Coke's net income, which plunged over 8% from the year-ago quarter to $1.7 billion. In the plus column, revenue rose 4% and operating income was reported as having risen 6%. This isn't very comforting when one considers that its international soda sales fizzled to virtually unchanged and were down 3% in North America.

As we look at the five-year price chart of Coca-Cola imagine how Warren Buffett's Berkshire Hathaway (BRK.B), which as of Dec. 31 owned over 9% of the outstanding Coke shares, must be feeling about now. By the way, 9% of the outstanding shares equals more than $16 billion worth.

KO Chart
data by YCharts

Since Berkshire has owned shares of Coca-Cola for many years its return on investment has been excellent, especially since 2009. But look at that orange line, the trailing 12-month (TTM) return on invested capital. That alone would make a big investor gulp, with or without a mouthful of Diet Coke Slurpee.

Among shareholders there's plenty of concern the company isn't doing enough to add products and diversify away from generating most of its sales from beverages.

If it doesn't take a hint from PepisCo's playbook, the shares may have limited upside for the time being. Selling at a forward (one-year) PE of almost 17 times earnings also continues to give it the look of a stock that isn't a bargain.

Add to that the limited hopes for future progress with its sales growth and the stock's estimated average one-year price target of over $43.92 (according to Yahoo! Finance) seems like a stretch.

On a positive note, the biggest shareholders' patience is starting to fizzle faster than an opened can of Coke, and if an activist investor or two shakes things up a bit the upside "explosion" may be similar to shaking a bottle of Cherry Coke and suddenly popping the cap. You get the picture.

At the time of publication the author had positions in KO and PEP.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of
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