Is Coca Cola Stock a Buy in 2022? – Coca Cola (KO) Stock Analysis


Is Coca-Cola Stock a Buy Now!? | Coca Cola (KO) Stock Analysis!

One of Warren Buffett’s favorite investments of all time is Coca-Cola (KO). Coca-Cola has paid out over nine billion dollars in dividend income to Warren Buffett. In total, Buffett’s Berkshire Hathaway owns 400 million shares of coca-cola which is projected to generate 672 million dollars in annual dividend income that comes out to roughly 1.8 million in dividend income per day 76 000 in dividend income per hour and 1 278 dollars in dividend income for Berkshire Hathaway every single minute.

Buffett has always been pretty public with his thoughts on coca-cola stock too,

those are the kind of businesses I like, wonderful brands you got to take care of them and but if you take care of an of a great brand you know it’s forever and those are the businesses I like we own 400 million shares of coca-cola stock as you know we’ve never sold a share and I wouldn’t think of selling a share.

As a value dividend investor myself, any time the greatest investor of all time speaks so highly of a company it’s worth taking the time to take a deep dive into the intrinsic value of coca-cola in order to find Coca-Cola’s intrinsic value we’re going to jump into my stock valuation spreadsheet

Okay so we are currently looking at my stock valuation spreadsheet in google sheets and on this spreadsheet we have four different valuation models we have grams valuation a discounted cash flow analysis a multiples valuation and a dividend discount model which will all roll into our output tab so that we can find the intrinsic value of coca-cola stock so let’s go ahead and start with grams valuation we can see here graham’s valuation was invented by benjamin graham he was one of warren buffett’s mentors and we can see exactly what his formula was right here to calculate the intrinsic value of stocks so we can see in order to do this the first thing we need is our earnings per share so i have that listed for coca-cola right here we then take seven which is the price to earnings of a company with no growth and we’re going to multiply or excuse me we’re going to add that to the projected growth rate for coca-cola which is currently 10 for most analysts we are then going to take the average yield of aaa corporate bonds which is 4.4 so we then multiply all these together and then we have to divide it by y which is the current yield of aaa corporate bonds which is currently 3.3 so we can see based off of graham’s valuation we come to an intrinsic value for coca-cola of 51.23 per share so let’s go ahead and jump over to our discounted cash flow analysis and in order to perform a discounted cash flow analysis we need to find the growth rate for the future free cash flows for coca-cola so in order to do this i looked at the historical free cash flows for coca-cola and found that they had an average growth rate of about 10 percent so i decided to use a growth rate of 10 for this scenario based off of this i then projected for the future free cash flows and calculated the terminal value which is a combination of all the future free cash flows past the year 2030. i then found the present value of these future free cash flows and added them all together which you can see right here the next step was to add all of coca-cola’s cash and cash equivalents and then i subtracted their total debt and this allowed me to find the equity value of coca-cola the final step was to take the shares outstanding and then take the equity value and divide it by the number of shares outstanding so we can see based off of our discounted cash flow analysis coca-cola had an intrinsic value of 54 dollars per share so let’s go ahead and jump over to our multiples valuation model now and for the multiples valuation model there were only a couple of companies that i felt comfortable comparing to coca-cola but essentially in order to perform a multiples valuation what we’re going to do is we’re going to take companies that are similar to coca-cola which you can see in this scenario is pepsi and monster beverage corporation we then take their earnings per share and we’re going to take the stock price and divide it by the earnings per share to find the price to earnings multiple we then take the average price to earnings multiple which in this scenario was 28 and we then multiply it by coca-cola’s earnings per share which leads us to a stock price of 63.62 which should be the intrinsic value based off of our multiples valuation model so let’s go ahead and jump over to what everyone wants to see for this valuation of coca-cola which is the dividend discount model and this is a very popular way to value dividend stocks so for coca-cola this is obviously a very important valuation model so essentially the idea behind the dividend discount model is that we can find the intrinsic value of a stock based on how fast they grow their dividends and how much they’re paying out in dividends so essentially what i did is i took the historical dividend data for coca-cola and i then found what their yearly dividend payout was this allowed me to see what the growth rate was year over year and their average growth rate over the past few years was about 3.23 percent so i projected a growth rate for their dividends of 3.3 percent after applying a discount rate of 8 we can see that based off of our dividend discount model their intrinsic value was 36.92 cents per share so let’s go ahead and jump over to our output tab.

Here on our output tab you can see exactly what our valuation models projected for graham’s valuation 51 multiples valuation 63 discounted cash flow 54 dividend discount model 36.92 i then take the average of all these valuations which we can see was about 51.46 and so when we look at the current price of coca-cola it’s currently trading at a price of about 58 dollars per share that’s a different of about 14 between the two and so it really doesn’t matter what our margin of safety is in this scenario because we can clearly see our current price is higher than the intrinsic value let’s go ahead and say we wanted to apply a 10 margin of safety we can see that based off of our valuation our acceptable buy price would be about 46.31 now full disclaimer i do own a fair amount of coca-cola stock but i wouldn’t want to buy in at its current price i’m up about 500 in my own personal portfolio which you can see in my monthly updates but i was able to buy into coca-cola at a much better price than it’s currently priced at and if we jump back over to our stock screener one other thing to take note of is coca-cola is starting to get a pretty high payout ratio i do love the dividend yield it’s a pretty solid yield at 2.86 percent and they have been very consistent with increasing their dividend payouts but it is worth noting that that payout ratio is getting a little bit high so really again i do love coca-cola stock but at this price i don’t know if it’s the best option for dividend investors let me know your thoughts on coca-cola stock in the comments below i know for me personally if it does dip back down into this acceptable buy price of about 46 dollars i will likely be adding more to my.


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