Brad Schwer

The Coca-Cola Company

(KO)

Sector: Consumer StaplesIndustry: Soft Drinks

Recommendation: BuyEstimated Value: $58.31-$59.31

Current Price: $54.95

Company Information

• Fiscal year ends 12/31• Non-alcoholic • Carbonated and non-carbonated beverages• Headquarters in Atlanta, GA• Focus is on the syrup for beverages

– Sold to bottlers, distributors, and fountain retailers

Familiar Products

• Coke/ Diet Coke• Dasani (bottled water)• Sprite• Fanta• Vault (energy drink)• Powerade

Coca-Cola: Buy

18

14

1225

4

27

2009 Operating Profits by Segment

North America

Latin America

Corporate

Asia

Africa

Europe & Eurasia Middle East

Source: Edward Jones

Sales and EPS GrowthDEC DEC DEC DEC DEC DEC2009 2008 2007 2006 2005 2004

Revenue (in billions)

31.0 31.9 28.9 24.0 23.1 22.0

% Change -3.0% 10.7% 19.8% 4.3% 5.2%Baseline EPS

3.05 3.15 2.70 2.37 2.18 2.07

% Change -3.2% 16.7% 13.9% 8.7% 5.3%

•5-year compound growth rate in sales: 7.0%•5-year compound growth rate in EPS: 8.0%

SWOT Analysis

Strengths Weaknesses•Emerging markets•Non-carbonated beverages•Brand name

•Potential soft drink tax•Health trends•Increased competition•Questionable management

SWOT Analysis

Opportunities Threats•Emerging markets•Energy drinks•Non-carbonated beverages•Acquisitions

•Potential soft drink tax•Health trend•Increased competition•Foreign currency

Value Line ProjectionsFiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year

EPS 2010 0.68 0.99 0.93 0.80 3.40

Fiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year

EPS 2010 0.74 1.05 0.91 0.73 3.43

11.5% Yr to Yr Gain

12% Yr to Yr Gain

Baseline Projections

Value Line ProjectionsFiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year

Revenue (in billions)

7.6 8.9 8.9 7.4 32.8

Fiscal Year Mar 31 Jun 30 Sep 30 Dec 31 Full Year

Revenue (in billions)

7.9 9.0 8.6 7.7 33.0

Baseline Projections

7% Yr to Yr Gain

7% Yr to Yr Gain

P/E ValuationCompany Ticker EPS

Growth (5 yr)

Rev Growth (5 yr)

Beta Forward P/E

Dividend

ROE

Coca-Cola KO 8% 9% .71 16.0 3.2% 30%

PepsiCo PEP 11% 9% .68 15.9 2.7% 41%

Dr. Pepper Snapple

DPS 10% 4% .89 14.5 1.8% 17%

National Beverage Corp.

FIZZ 6% 4% .80 14.6 None 21%

Average Forward P/E for S&P 500: 14.5

P/E Valuation

• 5-year average P/E: 18• Forward P/E: 16• Averaged P/E multiple: 17x• Estimated projection: 17*$3.43

$58.31 per share

DCF Input Data    Projection Period

2009 2010 2011 2012 2013 2014

Revenue$30,990.

0$33,469.

2$36,146.

7$39,038.

5$41,771.

2$44,695.

1Growth -3.0% 8.0% 8.0% 8.0% 7.0% 7.0%

EBITDA $9,467.0$10,208.

1$10,482.

5$11,711.

5$12,531.

3$13,408.

5% Margin 30.5% 30.5% 29.0% 30.0% 30.0% 30.0%Growth -2.1% 7.8% 2.7% 11.7% 7.0% 7.0%

Dep & Am $1,005.0 $1,085.4 $1,172.2 $1,266.0 $1,354.6 $1,449.5

EBIT $8,462.0$9,122.7$9,310.3$10,445.

5$11,176.

7$11,959.

1% Margin 27.3% 27.3% 25.8% 26.8% 26.8% 26.8%

Taxes $1,534.0 $1,656.7 $1,789.3 $1,932.4 $2,067.7 $2,212.4EBIAT $6,928.0$7,466.0$7,521.1$8,513.1$9,109.1$9,746.7Equity risk premium 8%

P/EBITDA multiple 13.0x

Valuation

• DCF intrinsic value: $59.31• P/E valuation: $58.31• Valuation range

$58.31-$59.31• Current stock price

$54.95 (Undervalued)

Pros Cons•Solid payout ratio•Increasing dividends•Cash position•Acquisitions•Stock buybacks

•Bottling acquisition’s North American focus•Lower margin acquisition•Regulations•Halting stock buybacks until CCE deal closes (4Q 2010)

Recommendation: BuyEstimated Value: $58.31-$59.31

Current Price: $54.95

Questions from the Board of Directors?

Appendix

Coca-Cola vs. PepsiCo (6-month)

Against the S&P 500 (6-month)

Foreign Currency ExposureCoca-Cola

• Generated 74% of net operating revenue from outside U.S.

• Uses 72 functional currencies• Currency impact on net revenue

2009: -11%• Uses derivatives to hedge

Forward contracts Purchase currency options

PepsiCo

• Generated 48% of net operating revenue from outside U.S.

• Currency impact on net revenue 2009: -5%

• Uses derivatives to hedge Forward contracts Commodity contracts

Acquisition

• Announced acquisition of North-American operations of Coca-Cola Enterprises (CCE) 75% of CCE’s volume

• $12.9 billion of equity and debt• Synergies of $350 million over 4 years• Assume $8.8 billion in debt• KO sells Norwegian and Swiss bottling

operations to CCE for $822 million