The internet has made our life easier in so many ways. It has become a great place for experts to share their views and ideas with the world. Sometimes we come across good investment write-ups on the internet that we’d like to bring to your attention. In this piece, we are going to discuss an investment thesis by a Reddit user on The Coca-Cola Co (NYSE:KO).
Coca-Cola is the popular stock among hedge funds tracked by Insider Monkey. There are 44 funds in our database with bullish positions in the beverage company.
According to the Reddit user, Redcards, Coca-Cola’s share price is depressed and the equity represents “a rare opportunity to invest in a misunderstood mega-cap that is set to expand margins, grow free cash flow, and increase returns on invested capital.”
The investment thesis suggests that, at 23.4x next twelve months (NTM) earnings, Coca-Cola equity currently does not price in the upside offered by the forthcoming completion of its bottling operation restructuring efforts. Instead, it reflects the typical consensus story of whether volumes will either be LSD or MSD.
“Normalized earnings, through the noise of the restructuring operations, show a business that is set to return capital to shareholders after several years of disappointing returns (~5.0% P.A. excl. dividend 2012 – Present),” according to the thesis.
The Coca-Cola Co produces syrup concentrate used in the production of various carbonated and un-carbonated beverages that are sold to bottler partners on a global basis. The bottler partners make the finished product, sale, and distribute products to retail stores, vending machines, restaurants, and food service distributors.
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The thesis suggests that 60% of the Coca-Cola’s FY16 revenues were generated through the sale of finished products while 40% was derived from the sale of concentrates. The United States was responsible for 48% of the company’s FY16 revenues while 52% came from international sales.