Though stocks like The Coca Cola Company (KO) are often considered more attractive plays during times of market turbulence, Zacks senior consumer non-durables industry analyst Steven Ralston, CFA had this to say in his recent Hold report on the global beverage company:
'The Coca-Cola Company has strong soft drink brands, leading market shares and generates solid cash flow. The company's CEO, E. Neville Isdell, announced a revitalization plan in November 2004 to deal with the challenges of sluggish volume trends. The plan included a reduction in the long-term earnings per share growth target from the 11% to 12% range to high
single-digits.
'Though world-wide volume growth has begun to improve, it has required incremental marketing spending of $400 million annually. The Hold recommendation is maintained.
'Coca-Cola's stock peaked in 1998 at a 57 P/E, a few quarters after the death of Roberto Goizueta, Coke's CEO, who helped give the company a focus and coined the iconic phrase 'Coke Is It.' The stock has experienced pronounced P/E multiple contraction for the last six years, as several CEOs have attempted to jump-start the company's volume growth.
'With its unique global franchise, Coca-Cola stock should trade in a P/E multiple range of 18 to 25 until the execution of the revitalization plan begins to show results in North America. The target price of $63.25 is 24 times 12-month trailing EPS.'
