KO Stock Report

2-Year Price History

Ockham's Rating

KO Stock Evaluation

A downgrade has occurred this week for KO because of eroding valuations. Since our last rating change that occurred on 06/27/2009, KO’s price has risen by $0.75, or 1.56%. With no substantial improvements to fundamentals, this stock looks less attractive as the stock price has risen.

KO Revenue

As a value investing shop, we are interested in seeing how KO's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 5.28x and the low end of the range at 3.84x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for KO of 3.30x is well below its normal historic Price to Sales levels. At a price of $48.88, KO is 28% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

KO Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. KO is below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for KO, the current level of Cash Earnings compared to its historical levels helps identify where KO is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 21.89 and a historical low Cash Earnings per share ratio of 15.79, an investor can relate where value becomes optimal.

With a historical average Cash Earnings ratio of 18.84, the current Cash Earnings ratio of 16.46 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for KO, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at KO needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where KO is trading currently (latest close price of $48.88).

KO Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for KO to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for KO is $1.64 producing a current dividend yield of 3.36%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from KO against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from KO over previous years was 4.38% while the lowest dividend yield was 1.02%. It's hard not to notice that KO pays a current dividend yield that is 24.44% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.