What is KO's Intrinsic value?

Coca-Cola Co (KO) Intrinsic Value Analysis

Executive Summary

As of August 2, 2025, Coca-Cola Co's estimated intrinsic value ranges from $28.92 to $90.50 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $90.50 +31.4%
Discounted Cash Flow (5Y) $74.98 +8.9%
Dividend Discount Model (Multi-Stage) $74.27 +7.9%
Dividend Discount Model (Stable) $83.34 +21.0%
Earnings Power Value $28.92 -58.0%

Is Coca-Cola Co (KO) undervalued or overvalued?

With the current market price at $68.86, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Coca-Cola Co's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.45 0.54
Cost of equity 5.9% 7.9%
Cost of debt 4.0% 4.8%
Tax rate 18.4% 19.3%
Debt/Equity ratio 0.15 0.15
After-tax WACC 5.6% 7.3%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $47,061 (FY12-2024) to $73,490 (FY12-2034)
  • Net profit margin expansion from 23% to 31%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $75 $362,583M 86.3%
10-Year Growth $90 $429,390M 74.5%
5-Year EBITDA $50 $255,598M 80.5%
10-Year EBITDA $64 $315,283M 65.3%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 69.4%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.9%
  • Long-term growth rate: 3.0%
  • Fair value: $74.27 (7.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.9% (Low) to 5.9% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $34 to $133
  • Selected fair value: $83.34 (21.0% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $10,411M
Discount Rate (WACC) 7.3% - 5.6%
Enterprise Value $141,795M - $186,908M
Net Debt $39,856M
Equity Value $101,939M - $147,052M
Outstanding Shares 4,304M
Fair Value $24 - $34
Selected Fair Value $28.92

Key Financial Metrics

Metric Value
Market Capitalization $296392M
Enterprise Value $336248M
Trailing P/E 24.33
Forward P/E 26.02
Trailing EV/EBITDA 13.65
Current Dividend Yield 285.37%
Dividend Growth Rate (5Y) 4.36%
Debt-to-Equity Ratio 0.15

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $27.15
Discounted Cash Flow (5Y) 25% $18.74
Dividend Discount Model (Multi-Stage) 20% $14.85
Dividend Discount Model (Stable) 15% $12.50
Earnings Power Value 10% $2.89
Weighted Average 100% $76.14

Investment Conclusion

Based on our comprehensive valuation analysis, Coca-Cola Co's intrinsic value is $76.14, which is approximately 10.6% above the current market price of $68.86.

Key investment considerations:

  • Strong projected earnings growth (23% to 31% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.15)
  • Historical dividend growth of 4.36%

Given these factors, we believe Coca-Cola Co is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.