Coca-Cola CompanyKO

Morningstar Rating

Stock Research and Analysis

by Philip Gorham, CFA

The extensive distribution network that enables Coca-Cola to deliver its products to almost all corners of the globe gives the firm a wide moat, in our opinion, and sets it apart from many other consumer products companies. Declining consumption of carbonated beverages in its key North American market and softer consumer spending during the current economic downturn will create some head winds in the near term, but we think that Coke's global reach and iconic brands will hold the firm in good stead in the long term. Read more

Bulls Say

Coca-Cola's distribution network extends to more than 200 countries worldwide, an infrastructure that would be extremely difficult and costly for new entrants to replicate.

Interbrand has named Coca-Cola the most valuable brand in the world for several consecutive years, citing the firm's effective marketing and ability to adapt its product portfolio to shifting consumer tastes.

The company's products represent around 3% of the estimated 50 billion beverages that are served every day around the world, creating global familiarity with its brands.

Coke has emerged as the long-term winner in the cola war with PepsiCo, one of the most profitable beverage categories, and competition between the rivals on price is no longer as fierce.

Albeit late to the game, Coke has recently extended its product portfolio into growing noncarbonated beverage categories in response to changing consumer preferences. Read more

Bears Say

Coke's revenues are relatively undiversified in comparison with those of rival PepsiCo, whose snacks business has held up relatively well so far during the economic downturn.

With a footprint that already spans the globe, there may be little remaining opportunity for Coke to expand geographically.

Despite the popularity of its flagship brand, cola consumption is declining at a faster rate in the U.S. than the broader carbonated soft drinks market.

Coke could face a rejuvenated competitor next year, as PepsiCo is consolidating its bottlers in an attempt to improve the performance of its beverages division. Read more

Strategy

In recent years, Coke has responded to the declining carbonated beverage sector by broadening its product portfolio through both acquisition and product innovation. In North America, the firm has adopted a three-product strategy in the cola category--Coca-Cola, Diet Coke, and Coca-Cola Zero--in an attempt to grab market share from competitors. Read more

Management

Coke has gone through a leadership transition, with Muhtar Kent having taken the helm as CEO in July 2008 and as chairman in April 2009. Although we think Coke has an otherwise strong level of director independence, we would prefer to see the roles of CEO and chairman split between two individuals because this may allow the board to set its agenda independently from management. Read more

Profile

Coca-Cola is the world's largest manufacturer, distributor, and marketer of nonalcoholic beverage concentrates and syrups. The firm also sells a variety of noncarbonated drinks such as water, juices, and teas. Read more

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