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Why Coca-Cola Is Not Attractive Now

Summary

A great company does not always mean a great stock, as the valuation of the stock is critical for future returns while the past does not count.

KO has failed to grow in the last 5 years and is not expected to grow in 2016 either.

In the meantime, its management has been ignoring the great challenges and has been extremely rewarding itself, with almost 1/3 of the earnings of the company.

Another major point of concern for the stock of KO is the cycle of interest rate hikes, which just started.

When the interest rates rise to 2%-3% and the 10-year bond yields rise to 4%-5%, thus exceeding the dividend yield of KO, bonds will become more attractive than KO.

Coca-Cola (NYSE:KO) is a unique company with an exceptional historical record. To be sure, it is the world's largest beverage company and has increased its dividend for 53 consecutive years. Nevertheless, a great company does not always mean a great stock, as the valuation of the stock is critical for future returns while the past does not count. In this article, I will analyze why Coca-Cola is not an attractive stock for investors right now.

First of all, the company has failed to grow in the last 5 years and is not expected to grow in 2016 either, mainly due to its past success and size. As the company already sells its products in more than 200 countries at a rate of 1.9 billion servings per day, it is really hard to achieve meaningful further growth. In addition, consumers have become increasingly health-conscious and hence it has become increasingly hard for the flagship category of carbonated drinks to grow. While the long-term health implications for the company may not be as great as some investors think, they certainly make it hard for the company to achieve meaningful growth from the current pronounced consumption rates of its carbonated drinks. This is already reflected in the earnings of the company, which have stopped growing in the last 5 years (data from morningstar.com).

One could claim that the management of the company has made some moves in the right direction. Indeed the partnerships with the energy-drink titan Monster Beverage (NASDAQ:MNST) and...


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