Coca-Cola Investment Analysis

1316 WordsMay 23, 20086 Pages
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…show more content…
In this calculation the estimated 2007 dividend was found using the 2006 dividend $1.24 multiplied by the growth rate 9.16%. The current stock price was found in the Value Line Investment Survey. Application of the Constant Dividend Valuation Model: Based on the expected growth rate, required rate of return and the expected dividend paid out in 2007, we can use the constant dividend valuation model to determine if Coke is undervalued, overvalued, or currently priced fairly. To recap, based on the Value Line Investment Survey Coke is currently selling for $46.65 per share. The growth rate is 9.16%, the required rate of return is 12.05%, and the Value Line dividend paid for Coke in 2006 is $1.24. Coke’s estimated stock value = $1.24 (1 + 9.16%) / (12.05% - 9.16%) = $46.84. It looks as though Coke is fairly priced at $46.65. This is because the estimate of $46.84 is less than half of a percent higher than the actual stock price. Dividend valuation models are the most logical approaches used in determining the value of stocks. The future dividends are projected when we value stocks. Since Coke is in a mature and stable industry, it makes sense that the constant dividend valuation model was used to determine that estimated value of its common stock. Investment Advisory Opinions Advisory Service Ratings Strongest Buy Recommendation Standard & Poor's 4 / 5
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