As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Coca-Cola Co (KO).
Profile
Founded in 1886, Atlanta-headquartered Coca-Cola is the world’s largest nonalcoholic beverage company, with a strong portfolio of 200 brands covering key categories including carbonated soft drinks, water, sports, energy, juice, and coffee. Together with bottlers and distribution partners, the company sells finished beverage products bearing Coca-Cola and licensed brands through retailers and food-service locations in more than 200 countries and regions globally. Coca-Cola generates around two thirds of its total revenue overseas, with a significant portion from emerging economies in Latin America and Asia-Pacific.
Recent Performance
Over the past twelve months the share price is up 3.77%.
Source: Google Finance
Inputs
- Discount Rate: 6%
- Terminal Growth Rate: 2%
- WACC: 6%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 11.76 | 11.09 |
| 2025 | 12.45 | 11.08 |
| 2026 | 13.17 | 11.06 |
| 2027 | 13.94 | 11.04 |
| 2028 | 14.75 | 11.02 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 376.13 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 281.06 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 55.30 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 336.36 billion
Net Debt
Net Debt = Total Debt – Total Cash = 25.63 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 310.73 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $72.26
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $72.26 | $63.33 | 12.36% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $72.26 share is higher than the current market price of $63.33. The Margin of Safety is 12.36%.
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One Comment on “Coca-Cola Co (KO) DCF Valuation: Is The Stock Undervalued?”
Do you honestly believe this is a realistic estimate of a DCF model for Coke? Constant growth rate using the estimated WACC?