Introduction
Coca-Cola’s earnings and growth are expected to remain positive. This is based on the quantitative and qualitative estimations by the chosen investment advisors, along with my own calculations. The investment advisors expect Coke’s operating income, net operating revenues, earnings per share, sales, and stock price to continue to increase. Based on my calculations, it is expected that Coke will grow at a rate of 9.16%, the required rate of return is 12.05%, and the current stock price ($46.65) is fairly priced with my calculation ($46.84). I am recommending Coke’s stock as a buy.
Economic Climate and Industry Performance
According to Value Line Investment Survey the Soft Drink Industry is maturing. Growth over the next year will have to come from other emerging markets. This is a defensive industry, which has little sensitivity to the business cycle. According to our textbook, a defensive industry includes food producers and Coke produces the syrup, which is the main ingredient of Coca-Cola. Despite hypothetical adverse domestic economic conditions in 2006, Coke’s earnings and growth will remain positive.
Standard & Poor’s shows the Soft Drink Industry as being positive. This is due to factors such as the S&P Soft Drinks Index gain of 8.6% in 2006 while the S&P 1500 gained only 4.2%. The earnings and cash flows for this industry are projected to continue to show solid growth. These earnings and growth are projected to increase due to pricing gains, as these companies will increase their prices with little consumer push, along with new product contributions.
Coca-Cola’s Operations and Revenues
As found in Coke’s 2005 annual report, Coke is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentra ...