The Coca-Cola Company (KO) will be announcing earnings on Tuesday, so what better time than the present to get an update on its current valuation. There's not much needed to be said about a company as great as Coca-Cola. It has the number 1 and number 2 brands in terms of sales in Coca-Cola Classic and Diet Coke as well as a huge stable of other recognizable brands in Sprite, Powerade, Vitaminwater, Minute Maid and many more. The Coca-Cola Company closed trading on Friday, February 14th at $38.93 giving a current yield of 2.88%.
Analysts followed by Yahoo! Finance expect The Coca-Cola Company to grow earnings 5.55% per year for the next five years and I've assumed they can grow at 4.5% per year thereafter. Running these numbers through a two-stage DCF analysis with a 9% discount rate yields a fair value price of $44.65. This means the shares are trading at a 12.8% discount to the discounted cash flow analysis.
The Graham Number valuation method was conceived of by Benjamin Graham, the father of value investing, and calculates the maximum price one should pay for a company given the earnings and book value. The Coca-Cola Company earned $1.93 per share in the last twelve months and has a current book value per share of $7.28. The Graham Number is calculated to be $17.78, suggesting that it is overvalued by 119.0%.
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