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Just Buy This Beverage Giant: The Coca Cola Company (KO)

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On Feb. 12, the beverage giant, The Coca Cola Company (NYSE:KO), announced its fourth quarter earnings.

Coca-Cola’s Earnings

Coca-Cola earned $1.87 billion, or $0.41 per share in 4Q12, which was up from $0.36 per share from the same quarter last year. Revenues for the quarter grew 4% to $11.46 billion; analysts had estimated revenues of $11.53 billion. The core reason behind this awesome performance was a high sales volume in tea, water and soda.

In case of sparkling beverages, company’s portfolio was up 3% for the year that was led by brand Coca-Cola that grew by 3%. Coming to the still beverages, Coca-Cola’s portfolio grew 10% for the year, thanks to PowerAde and Dasani.

North America

The North American region grew 1% for the quarter and 2% for the year, showing a quarterly growth for the 11th consecutive time. In the U.S, the company saw an increase in the “consumer dollar spent” from $56 to $60 per person in 2012. This tremendous growth was mainly led by company’s still beverages portfolio which grew by 8% in the quarter and also for the year.

Smartwater saw double digit growth for the fifth consecutive year. Moreover, the juice drinks portfolio also had remarkable growth during the year. In the case of tea, Gold Peak had remarkable growth of 36% for the year. Moreover, the sparkling beverages’ transactions were up 1% for the year.

South America & Pacific

The South American region grew 3% for the year. Brazil and Mexico, which are company’s biggest markets, grew by 6% and 4% respectively. The Pacific group was up 2% for the quarter and 5% for the year. In case of Japan, sales volume grew for the third consecutive year. As far as China was concerned, sales volume was down 4% for the quarter amid unstable economy and poor weather conditions.

Eurasia & Africa

In Eurasia & Africa, company’s portfolio was up 10% for the quarter and 11% for the year. The region was led by an 8% growth in Russia, where the Coca-Cola and Dobriy juice brands were up 20% and 13%, respectively, for the year. In India, the company saw a growth of 16%. In Europe, the company’s business declined by 5% for the quarter and 1% for the year amid macroeconomic uncertainty.

Valuation

Coca-Cola is currently trading at a forward P/E (1yr) of 17.31x and has a dividend yield of 2.60%. It has a PEG of 2.36; adding its dividend yield into this gives us gives us a PEGY of 1.80. Using an average industry forward P/E of 16.8x, I can value Coca-Cola. However, as Coca-Cola is expected to perform way better than its industry peers in the coming years, I would use a premium of 15% while valuating it.

According to high consensus estimates, Coca-Cola should be trading at $42.89; hence, it is hugely undervalued. It has an upside potential of almost 14%. Adding its dividend yield into this gives us a total return of 16.60%. Hence, Coca-Cola looks really attractive at this moment.

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