NEW YORK (TheStreet) -- Few cities can trace their history to a single man, a single moment and a single company the way Atlanta can.
The more important moment came in 1923 when new CEO Robert Woodruff, son of a local banker, challenged squabbling bottlers and syrup barons to make every Coca-Cola taste like every other Coca-Cola anywhere in the world.
The challenge put Coca-Cola on course to become one of the world's great water purification companies, able to get $1/bottle and more for something that should come out of a tap but which increasingly doesn't -- as the people of Toledo will attest.
While rivals like Pepsi-Cola (PEP) pushed the soda idea as far as they could and then diversified into food, Coca-Cola has mainly stuck to its knitting. It franchises and licenses, then markets and distributes the idea that its water products won't hurt you, creating value for what the bottlers produce. Coke shares, at around $39, are down nearly 5% for the year to date.
Even a pure water product like Dasani has an enormous amount of investment behind it, marketing and positioning on which the parent company gets profitable payments. In fact, Woodruff was representing the interest of the syrup guys when he made his challenge, and the syrup guys have generally remained the right place for investors to play. TheStreet gives the parent company an A as an investment.
Over the years Coca-Cola has invested in its bottlers, bought many of them and spun some out in 1986 as Coca-Cola Enterprises (CCE), then bought back the North American operations in 2010 for $12.3 billion.
While KO has usually delivered the bigger gains, that may be changing. Shares of Coca-Cola Bottling Co. Consolidated (COKE - Get Report), an independent bottler in the Southeast, are up 9% over the last year.
COKE, which reports earnings Tuesday, operates like a utility. It is capital intensive and its benefit as an investment lies in the careful management of debt against income. Over the last few years it has dropped its debt-to-assets ratio from almost half to just a third, so while the income statement shows slower earnings, it's actually a healthier company than it was.
What does that mean for Coca-Cola? Critics such as Wintergreen Partners, which launched FixBigCola, think Coke should focus on profit as COKE is doing instead of growth. They are missing the point and the opportunity the real Coca-Cola represents.
World demand for water, especially highly potable water, is growing. Even the U.S. will be under "freshwater stress" by the year 2025, notes The Habitable Planet. A company that can solve that problem with high profits should be worth a lot of money, and this has been the real Coca-Cola Co. story for nearly a century.
Just as important, Coca-Cola and its bottlers know how to sell the resulting product, at a premium price. That's an earnings rocket ship I want to be on.
At the time of publication, the author was long KO, although positions may change at any time.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates COCA-COLA CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate COCA-COLA CO (KO) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."
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 65.60%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.63% is above that of the industry average.
- COCA-COLA CO' earnings per share from the most recent quarter came in slightly below the year earlier quarter. 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 ($2.08 versus $1.90).
- KO, with its decline in revenue, slightly underperformed the industry average of 3.4%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Beverages industry and the overall market, COCA-COLA CO's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The change in net income from the same quarter one year ago has exceeded that of the Beverages industry average, but is less than that of the S&P 500. The net income has decreased by 3.0% when compared to the same quarter one year ago, dropping from $2,676.00 million to $2,595.00 million.
- You can view the full analysis from the report here: KO Ratings Report