With shares of The Coca-Cola Company (NYSE:KO) trading at around $37.56, is KO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The stock didn’t respond well to the Q4 earnings report yesterday, but should that be looked at as an opportunity? Let’s take a look at the basics first. Q4 EPS came in at $0.41. This was stronger than Q4 2011 EPS of $0.36. Profits rose as more drinks were sold overseas. Q4 revenue came in at $11.46 billion, which was a 4 percent increase year-over-year. FY2012 EPS was $1.97, which was an improvement over $1.85 in FY2011.

North America and Europe soda volume declined due to fewer soda drinkers. Soda sales volume in North America dropped 2 percent. This will be covered further in the Trends section. Overall sales volume also declined in Europe. However, Coca-Cola expects a rebound in Europe. The good news is that North America sales volume (not just soda) increased 1 percent. This was mostly due to Powerade and bottled tea. 

Another factor that has the potential to impact sales in the future is that PepsiCo (NYSE:PEP) has stepped up its game. For instance, Pepsi is now sponsoring the Super Bowl halftime show, and there is no telling what else the company has up its sleeve. Coca-Cola has still increased its market share, and Coca-Cola has stated that it likes the competition because it keeps the company on its toes. We’ll see how it plays out.

Let’s take a look at some important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal   

The debt-to-equity ratio for Coca-Cola is normal. The balance sheet is negative, but very manageable. Coca-Cola’s operating cash flow is over $10 billion. 


T = Technicals on the Stock Chart Are Mixed

Coca-Cola has performed well over the past three years. During that time frame, Coca-Cola has outperformed Pepsi by a wide margin. Dr. Pepper Snapple Group (NYSE:DPS) performed the best of the three for that time frame. Pepsi and Dr. Pepper both yield 3 percent. Coca-Cola yields 2.60 percent.


At $37.56, Coca-Cola is trading above its 50-day and 100-day SMA, and below its 200-day SMA.      

50-Day SMA


100-Day SMA


200-Day SMA



E = Earnings Have Been Inconsistent              

Earnings have been inconsistent over the past five years. The only consistency has been profitability. Revenue has showed consistent improvement since 2010.


When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.


Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Soda has a bad image right now, sharing the blame for the high instance of obesity and diabetes in the U.S. with fast-food restaurants. Many people are searching out alternatives, cutting down on their soda intake or cutting it out of their diets altogether.

Competition from energy drinks is also a key factor. Luckily, Coca-Cola doesn’t just sell soda (it owns the Minute Maid juice brand and Dasani water), but it still has a lot of catching up to do in the energy drink market.

Other factors weighing on the industry include higher payroll taxes and gasoline prices.

The good news is that Coca-Cola is a highly innovative company with strong management. This company should never be bet against, as it often finds ways to meet challenges.


Coca-Cola has excellent margins, its products are sold in every country in the world, excepting two (North Korea and Cuba), it expects to meet its long-term target of adjusted operating income of 6.8 percent, the dividend was just increased by 12 percent, and it’s one of the most well-known brands in the world.

Perhaps what is most important is that every single dip throughout the stock’s history has proven to be a buying opportunity. This is regardless of competition, economic conditions, or the strength or weakness of the stock market.

Coca-Cola is a long-term OUTPERFORM.

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