As part of our ongoing series, each week we typically conduct a DCF on one of the companies in our screens. This week, we’re analyzing one of the most iconic consumer brands in the world — The Coca-Cola Company (KO).
Profile
The Coca-Cola Company (KO) is a global beverage leader with a portfolio of over 200 brands, including Coca-Cola, Sprite, and Fanta. With unmatched global distribution, strong brand equity, and pricing power, Coca-Cola remains a staple in consumer portfolios.
DCF Analysis
Inputs
Discount Rate: 10%
Terminal Growth Rate: 3%
WACC: 10%
Forecasted Free Cash Flows (FCFs) in billions
Year FCF (billions) PV (billions)
2025 4.0 3.64
2026 5.0 4.13
2027 6.0 4.67
2028 7.0 5.35
2029 8.0 5.30
Total Present Value of FCFs = 23.09 billion
Terminal Value Calculation
Using the perpetuity growth model:
Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (8.0 × 1.03) / (0.10 – 0.03)
= 8.24 / 0.07
= 117.71 billion
Present Value of Terminal Value = 117.71 / (1.10)^5 = 73.10 billion
Enterprise Value Calculation
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 23.09 + 73.10
= 96.19 billion
Net Debt Calculation
Net Debt = Debt – Cash
= 44.52 – 14.57
= 29.95 billion
Equity Value Calculation
Equity Value = Enterprise Value – Net Debt
= 96.19 – 29.95
= 66.24 billion
Per-Share DCF Value
Shares Outstanding = 4.3 billion
Per-Share DCF Value = 66.24 / 4.3 = $15.40
Conclusion
DCF Value: $15.40
Current Price: $70.24
Margin of Safety: –78.1%
Based on this DCF valuation, Coca-Cola appears significantly overvalued. The calculated intrinsic value of $15.40 per share is well below the current market price of $70.24, resulting in a negative Margin of Safety of –78.1%.
While Coca-Cola offers durable earnings, a wide moat, and consistent dividends, its current valuation is difficult to justify given the steep decline in free cash flow. Unless FCF recovers meaningfully in the near term, the stock’s upside appears limited based on conservative assumptions.
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