BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F HOLD December 10, 2017 HOLD RATING SINCE 12/01/2017 BUSINESS DESCRIPTION The Coca-Cola Company, a beverage company, manufactures and distributes various nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Sub-Industry: Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years 47 46 45 STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change -1.09 10.87 1.69 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -14.63-12.13-6.86 Net Income 38.33-36.93-17.28 EPS 37.50-36.37-16.45 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 20.57 16.53 13.41 Q3 2016 27.66 15.86 11.79 Q3 2015 26.42 13.06 12.91 P/E COMPARISON Rating History BUY HOLD BUY Volume in Millions 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History 44 43 42 41 40 200 100 0 43.60 EPS ANALYSIS¹ ($) 34.58 Ind Avg 25.35 S&P 500 RECOMMENDATION We rate () a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing nesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins, growth in earnings per share and notable return on equity. However, as a counter to these strengths, we also find nesses including premium valuation, operating cash flow and generally higher debt management risk. HIGHLIGHTS The gross profit margin for 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 15.93% is above that of the industry average. Q1 0.35 Q2 0.71 Q3 0.33 2015 Q4 0.28 Q1 0.34 Q2 0.79 Q3 0.24 2016 NA = not available NM = not meaningful Q4 0.13 Q1 0.27 Q2 0.32 Q3 0.33 2017 1 Compustat fiscal year convention is used for all fundamental data items. has improved earnings per share by 37.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, reported lower earnings of $1.50 versus $1.67 in the prior year. This year, the market expects an improvement in earnings ($1.91 versus $1.50)., with its decline in revenue, underperformed when compared the industry average of 15.0%. Since the same quarter one year prior, revenues fell by 14.6%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share. Net operating cash flow has decreased to $2,527.00 million or 12.95% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower. PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -20% 100% COKE UNFAVORABLE 5% A.B F EBITDA Margin (TTM) PRMW CCE FIZZ A.A DPS PEP FAVORABLE MNST 40% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $390.9 Million and $195.1 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -20% 100% PRMW UNFAVORABLE -6% Earnings Yield (TTM) FAVORABLE COKE CCE F FIZZ MNST A.B A.A DPS PEP Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -12.1% and 93.1%. Companies with NA or NM values do not appear. 6% INDUSTRY ANALYSIS The US beverage industry is broadly divided into alcoholic and non-alcoholic segments. The alcoholic segment includes beer, wine, and spirits. The non-alcoholic segment includes carbonated soft drinks (CSDs), fruit beverages, bottled water, milk, sports drinks, energy drinks, ready-to-drink (RTD) tea, and RTD coffee. The industry has around 4000 manufactures and distributors generating upwards of $140 billion in annual revenue. The industry is highly competitive on pricing, packaging, marketing, and developing new products. The two biggest players are Coca-Cola () and PepsiCo (PEP), which together hold more than 50% of the market. The non-alcoholic beverage segment represents 60% of the market. Premium wineries revenue has registered annual growth of 8% over recent years and energy drink volume continues to surge. Faced with limited volume growth in developed markets, high-growth developing markets are increasingly important to the bottom line. Mergers, acquisitions, and partnerships are on the rise as food and drink brands look to establish or expand their presence in international markets. PepsiCo and Pepsi Bottling Group Inc. acquired a 75% stake in Russia s Lebedyansky JSC for around $2.0 billion in March 2008 and Coca-Cola bid $2.3 billion for China Huiyuan Juice Group Ltd. in September 2008. Health and convenience remain major challenges and play a significant role in shaping product strategies. Beverages have been in the spotlight over the last five years because of research that links ingredients, such as sugars and acids, with prevalent chronic diseases, such as obesity, diabetes, and dental decay. Rising environmental concerns also present a challenge. The production, distribution, and sale of beverages in the United States are subject to the Federal Food, Drug, and Cosmetic Act, the Dietary Supplement Health and Education Act of 1994, and the Occupational Safety and Health Act. These acts, various environmental statutes, and numerous other federal, state, and local statutes are applicable to the production, transportation, sale, safety, advertisement, and ingredients. Industry fragmentation also poses a major threat. To overcome this, companies are acquiring smaller players or developing independent plants. Coca-Cola s Monster distribution will help bottlers realize economies of scale in their direct store distribution system. PEER GROUP: Beverages Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) 45.78 195,053 43.60 37,307.00 4,550.00 FIZZ NATIONAL BEVERAGE CORP 112.75 5,253 45.28 869.64 116.32 A.B EMBOTELLADORA ANDINA SA 25.35 3,932 23.47 2,849.76 170.18 A.A EMBOTELLADORA ANDINA SA 24.50 3,932 22.69 2,849.76 170.18 PRMW PRIMO WATER CORP 13.02 391 NM 258.12-21.09 F COCA-COLA FEMSA SAB DE CV 67.85 3,564 19.84 10,727.06 711.94 MNST MONSTER BEVERAGE CORP 62.30 35,135 45.14 3,311.71 792.30 CCE COCA-COLA EUROPEAN PARTNER 39.32 19,046 22.34 12,193.55 860.62 DPS DR PEPPER SNAPPLE GROUP INC 94.10 16,989 23.58 6,625.00 733.00 PEP PEPSICO INC 116.73 166,007 24.17 63,514.00 6,968.00 COKE COCA-COLA BTLNG CONS 225.20 1,608 52.49 4,039.08 40.01 The peer group comparison is based on Major Soft Drinks companies of comparable size. PAGE 2
COMPANY DESCRIPTION The Coca-Cola Company, a beverage company, manufactures and distributes various nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company's still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, beverage ingredients, and fountain syrups, as well as powders for purified water products. The Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero, Fanta, Sprite, Minute Maid, Georgia, Powerade, Del Valle, Schweppes, Aquarius, Minute Maid Pulpy, Dasani, Simply, Glaceau Vitaminwater, Gold Peak, FUZE TEA, Glaceau Smartwater, Ice Dew, I LOHAS, and Ayataka brand names. The company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independent bottling partners, distributors, wholesalers, and retailers. The Coca-Cola Company has a strategic partnership with Delivery Hero Group to collaborate in the field of online food ordering and delivery services. The company was founded in 1886 and is headquartered in Atlanta, Georgia. One Coca-Cola Plaza Atlanta, GA 30313 USA Phone: 404-676-2121 http://www.coca-colacompany.com Employees: 100000 STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 1.0 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 10% of the stocks we rate. Total Return 3.0 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 50% of the companies we cover. Efficiency 4.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 80% of the companies we review. Price volatility 2.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 40% of the stocks we monitor. Solvency 4.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 70% of the companies we analyze. Income 4.5 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 80% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 0.39 Q4 FY17 1.91 E 2017(E) 1.99 E 2018(E) INCOME STATEMENT Net Sales ($mil) 9,078.00 10,633.00 EBITDA ($mil) 2,827.00 2,913.00 EBIT ($mil) 2,530.00 2,493.00 Net Income ($mil) 1,447.00 1,046.00 FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. Even though sales decreased, the net income has increased. has average liquidity. Currently, the Quick Ratio is 1.12 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has increased from the same period last year. During the same period, stockholders' equity ("net worth") has decreased by 15.17% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 27,357.00 25,569.00 Total Assets ($mil) 90,515.00 93,927.00 Total Debt ($mil) 49,100.00 47,224.00 Equity ($mil) 22,119.00 26,076.00 PROFITABILITY Gross Profit Margin 65.87% 65.10% EBITDA Margin 31.14% 27.39% Operating Margin 27.87% 23.45% Sales Turnover 0.41 0.45 Return on Assets 5.02% 7.68% Return on Equity 20.57% 27.66% DEBT Current Ratio 1.39 1.37 Debt/Capital 0.69 0.64 Interest Expense 208.00 182.00 Interest Coverage 12.16 13.70 SHARE DATA Shares outstanding (mil) 4,262 4,313 Div / share 0.37 0.35 EPS 0.33 0.24 Book value / share 5.19 6.05 Institutional Own % NA NA Avg Daily Volume 9,871,406 9,761,787 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. PAGE 4
RATINGS HISTORY Our rating for was recently downgraded from Buy to Hold on 12/1/2017. As of 12/7/2017, the stock was trading at a price of which is 3.6% below its 52-week high of $47.48 and 13.8% above its 52-week low of $40.22. 2 Year Chart BUY: $43.20 2016 HOLD: $42.12 BUY: $43.24 HOLD: $45.97 $48 $45 $43 MOST RECENT RATINGS CHANGES Date Price Action From To 12/1/17 $45.97 Downgrade Buy Hold 4/26/17 $43.24 Upgrade Hold Buy 10/27/16 $42.12 Downgrade Buy Hold 12/7/15 $43.20 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 12/7/2017) 45.41% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.81% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 23.78% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION HOLD. This stock's P/E ratio indicates a premium compared to an average of 34.58 for the Beverages industry and a significant premium compared to the S&P 500 average of 25.35. Conducting a second comparison, its price-to-book ratio of 8.82 indicates a significant premium versus the S&P 500 average of 3.22 and a premium versus the industry average of 8.45. The price-to-sales ratio is well above both the S&P 500 average and the industry average, indicating a premium. Upon assessment of these and other key valuation criteria, proves to trade at a premium to investment alternatives within the industry. Price/Earnings 43.60 Peers 34.58 Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations. is trading at a significant premium to its peers. Price/Projected Earnings 23.06 Peers 26.08 Average. An average price-to-projected earnings ratio can signify an industry neutral stock price and average future growth expectations. is trading at a valuation on par with its peers. Price/Book 8.82 Peers 8.45 Average. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a valuation on par with its peers. Price/Sales 5.23 Peers 4.57 Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a premium to its industry on this measurement. DISCLAIMER: Price/CashFlow 24.34 Peers 21.81 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a premium to its peers. Price to Earnings/Growth 1.55 Peers 1.04 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher -36.37 Peers 17.40 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher -12.13 Peers 17.82 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. PAGE 5