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How Will Coca-Cola (KO) Stock Be Affected By Its Investment In Mexico?

NEW YORK (TheStreet) -- Coca-Cola (KO) reiterated that it intends to invest $8.2 billion over the next six years in Mexico, its second largest market by sales volume, despite a recent 12% tax levied on full-calorie sodas by the Mexican government.

Mexico issued the tax in January in an effort to curb the country's obesity problem. A third of Mexican children and two-thirds of adults are overweight. 

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Meanwhile, Mexican bottlers have reported that sales have been negatively affected by the new tax, according to the Wall Street Journal.

Coca-Cola shares are down -0.4% to $41.97 in trading today. 

TheStreet Ratings team rates COCA-COLA CO as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate COCA-COLA CO (KO) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its expanding profit margins, good cash flow from operations, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for COCA-COLA CO is rather high; currently it is at 65.87%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 15.30% is above that of the industry average.
  • Net operating cash flow has significantly increased by 123.01% to $1,066.00 million when compared to the same quarter last year. In addition, COCA-COLA CO has also vastly surpassed the industry average cash flow growth rate of -6.24%.
  • COCA-COLA CO's earnings per share declined by 7.7% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, COCA-COLA CO reported lower earnings of $1.90 versus $1.96 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus $1.90).
  • KO, with its decline in revenue, slightly underperformed the industry average of 2.9%. Since the same quarter one year prior, revenues slightly dropped by 4.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • You can view the full analysis from the report here: KO Ratings Report
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