Coca Cola Consolidated Inc. (COKE) Valuation

Last time I promised to complete the beverage company survey, but once again the details proved to be significant enough to warrant a standalone article. Data is from company 2020 10K reports, Macrotrends, and company web sites.

Synopsis of Coca Cola Consolidated Inc. 

Largest Coca-Cola bottler in the United States, and bottles other brands as well. Distributes Monster, Fairlife milk, Dunkin' Donuts coffee. Has exclusive distribution rights for KO products in specific regions. Based in the Southeast, Midwest, and Mid-Atlantic portion of the United States. 13 manufacturing facilities, 14,000 FT and 1,800 PT employees. HQ in Charlotte, North Carolina. Has some religious elements in its Purpose; has a corporate chaplaincy program. Wal-Mart (19%) and Kroger (13%) together move about 32% of the COKE's sales volume. Shares some of the Coca-Cola legacy with KO. Capital-intensive, with substantial machinery and distribution investments. Has had average 1.7% net margin in the past. 

Main company web site. Investor Relations site has annual reports back to 2000.

COKE Valuation

Revenue and earnings data is from Macrotrends. Note that the EPS figure for 2020 matches that for fully diluted shares of 12M (Macrotrend) versus the current outstanding count of 9.373M (COKE 2020 10K). Dilution matters in valuing COKE, and recent gains likely means that all promised incentive shares will be issued. Amounts in the table are in millions.

	revenue	oper income	net income	oper margin	net margin	shrs	EPS
2020	$5,007	$313	$172	6.3%	3.4%	12	$14.73
2019	$4,827	$181	$11	3.7%	0.2%	12	$0.97
2018	$4,625	$58	-$20	1.3%	-0.4%	12	-$1.72
2017	$4,288	$102	$97	2.4%	2.3%	12	$10.30
2016	$3,130	$131	$50	4.2%	1.6%	12	$4.34
2015	$2,306	$98	$59	4.2%	2.6%	12	$5.12
2014	$1,746	$86	$31	4.9%	1.8%	11	$2.73
2013	$1,641	$74	$28	4.5%	1.7%	11	$2.42
2012	$1,614	$89	$27	5.5%	1.7%	11	$2.39
2011	$1,561	$88	$29	5.6%	1.9%	11	$2.52
2010	$1,515	$96	$36	6.3%	2.4%	11	$3.19
2009	$1,443	$95	$38	6.6%	2.6%	11	$3.37
2008	$1,464	$59	$9	4.0%	0.6%	12	$0.78
2007	$1,436	$82	$20	5.7%	1.4%	12	$1.71
2006	$1,431	$85	$23	5.9%	1.6%	12	$2.00
2005	$1,380	$92	$23	6.7%	1.7%	12	$1.99

Past revenue growth is not entirely organic, and has been supported by acquisitions. Valuation assumes a 2% net margin for base year EPS, which is above COKE average. COKE uses raw materials that are subject to inflationary pressures, and faces a monopoly supplier in its license agreements with KO.

scenario	base EPS	growth rate	grow dura.	growth rate from peak	dura. of post peak	disc rate	share value
pessimistic	$8.35	3%	14	-5%	12	5%	$144
optimistic	$8.35	12%	16	-3%	20	5%	$467
nominal	$8.35	6%	15	-4%	16	5%	$213
curr price	$21.53	3%	10	-5%	10	5%	$300
curr pr (dilu)	$14.73	5%	14	-5%	12	5%	$304
marg expan	$12.00	15%	7	-5%	16	5%	$295

The inclusion of "curr price" scenarios is an attempt to reconstruct what the market currently believes, using EPS estimates and manipulating the growth rates and duration to get the current market price as a result. '21 and '22 EPS analyst consensus estimates are $21.53 and $23.02. This seems optimistic, indicating that the market believes that recent elevated earnings are sustainable. Most of the other scenarios assume 2% net margins, which is closer to but above the historical average. 

Investment Discussion

COKE has already moved up from $150 to nearly $300 since 2019 on strong gross margins and earnings. It was as low as $75 in 2014, so COKE has already doubled in price twice in the past seven years. Nevertheless, historically COKE has had lower margins and it operates in a commodity business with thin margins that make earnings much more random than the beverage companies with greater proprietary elements, such as KO, PEP, and KDP. 

As so often happens when the market price and intrinsic value are close, and the valuation has a wide range, it's difficult to make a recommendation without deeper knowledge of product trends. For example, perhaps COKE is making most of its margins on specialty products like Monster and coffee. Even if carbonated Coco-Cola products continue to sell poorly, COKE's fortunes may be more determined by their non-KO brands.