The Coca-Cola Company (KO)

Conclusion

The Coca-Cola Company makes and sells non-alcoholic beverages worldwide through bottling partners, distributors and retailers, under brands such as Coca-Cola, Sprite, Fanta and smartwater. At 96.03 USD on 2026-11-09, the shares give a market capitalisation of 413.1 billion USD and an enterprise value of 438.1 billion USD.

The verdict is overvalued. The P/E of 28.2 sits close to its ten-year median of 28.0, and EV/EBITDA of 21.4 is above its median of 20.6. Price-to-sales is 8.1 against a median of 6.2. The fair value band runs from 63.05 to 94.57 USD with a midpoint of 78.81 USD, giving a margin of safety of -17.9% at the current price. The DCF gives 62.49 USD per share, while the fair value from historical multiples is 95.13 USD. The reverse DCF implies growth of 10.5% a year, against revenue growth of 7.8% over five years and free cash flow per share falling 9.3% a year over the same period.

What holds the case up is ROIC of 25.5% against a WACC of 8.4%, a net margin of 28.7% and a Piotroski score of 7 out of 9. The weakest numbers are the five-year decline in free cash flow per share (-9.3% a year), the 90-day change in the next-year EPS estimate (0.04%, with 12 downward revisions against 7 upward in the last 30 days) and the price-to-sales premium of 29.7% to its ten-year median.

Financial health

The financial strength is green, held up by four good readings. The current ratio is 1.38 and net debt to EBITDA is 1.22x, with interest coverage at 12.7x on a trailing basis. The quick ratio is 0.83 and debt to equity is 1.11x, which are the figures to watch as liabilities weigh on the balance sheet. The Altman Z-score is 5.90, in the safe zone, although the Altman model was designed for manufacturers and Coca-Cola is a beverage company, so the reading is indicative only. Insolvency risk: low, about 0.4% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. The balance sheet is not a constraint on the investment case.

Earnings quality

Earnings quality is green, and it is the strongest part of the analysis. Free cash flow conversion is 97.6% on a trailing basis and 75.5% on a five-year average. The accrual ratio is 0.0555, which is low. Stock-based compensation is 0.53% of revenue, and free cash flow after it is 14.0 billion USD. The share count fell by 0.05% a year over five years, so buybacks have offset dilution. The Piotroski score is 7 out of 9, and the Beneish M-score of -2.37 is in the unlikely range for manipulation. The company beat estimates in all eight of the last quarters, with an average surprise of 4.3%. Current-year estimates rose 1.2% over 90 days with 23 upward and no downward revisions in the last 30 days.

Profitability

Profitability is green, with four good readings. The gross margin is 62.3% against a ten-year median of 60.7%, the operating margin is 30.0% against 26.0%, and the net margin is 28.7% against 23.0%. Operating margin stability over the year was 0.109. The most important measure is ROIC of 25.5% against a WACC of 8.4%, which gives a ROIC minus WACC of 17.1%, and the five-year median ROIC is 21.3%. Return on equity is 39.1%, but the DuPont split shows that leverage plays a part: a net margin of 27.3%, an asset turnover of 0.457 and an equity multiplier of 3.26. The return on capital, not the return on equity, is the better guide to economic value creation.

Growth

Growth is yellow, with one good reading and three neutral. Revenue grew at a compound rate of 3.7% over three years, 7.8% over five years and 0.8% over ten years. Revenue rose in 6 of the last 10 years. EPS grew faster, at 11.5% over three years, 11.1% over five years and 6.2% over ten years. Free cash flow per share, however, fell at compound rates of -17.6% over three years, -9.3% over five years and -3.8% over ten years. The gap between earnings growth and free cash flow growth is the main question for this section. Next year's EPS growth estimate is 5.6%.

Valuation

Valuation is red, with the verdict overvalued. Against ten-year medians, the P/E is 28.2 against 28.0 (a premium of 0.9%), EV/EBITDA is 21.4 against 20.6 (a premium of 4.4%), and price-to-sales is 8.1 against 6.2 (a premium of 29.7%). Price-to-free-cash-flow is 28.9 against 29.0, and price-to-book is 11.1 against 11.2. The DCF gives 62.49 USD per share at a discount rate of 8.87%, with 2.5% terminal growth. The fair value from historical multiples is 95.13 USD. The fair value band from 63.05 to 94.57 USD has a midpoint of 78.81 USD, and the margin of safety is -17.9% at the price of 96.03 USD. The reverse DCF implies growth of 10.5% a year, against 7.8% revenue growth over five years. The dividend yield is 2.7% and the payout on free cash flow is 78.6%. The fair value band is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target.

Risks

The main risk is a continued fall in free cash flow per share, which runs against the earnings growth of 11.1% over five years. If free cash flow keeps falling, the DCF and the reverse DCF become harder to justify. A rise in debt, with net debt to EBITDA at 1.22x and interest coverage at 12.7x, would weaken the balance sheet. Weaker estimate revisions, with 12 downward revisions in the last 30 days for next year, could signal slower earnings. The valuation premium on price-to-sales of 29.7% leaves little room for error. The analysis has limits. It has no debt maturity schedule and no revenue by segment, so the timing of refinancing and the sources of growth cannot be checked. The Altman figures are indicative for a non-manufacturer.