Coca-Cola KO reported 2025 first-quarter earnings report on April 29. Here’s Morningstar’s take on Coca-Cola’s earnings and stock.
Key Morningstar Metrics for Coca-Cola
- Fair Value Estimate: $66.00
- Morningstar Rating: ★★
- Economic Moat: Wide
- Morningstar Uncertainty Rating: Low
What We Thought of Coca-Cola’s Earnings
Coca-Cola posted 6% organic sales growth in the first quarter on a 5% price mix increase. Adjusted operating margin widened 140 basis points to 33.8%.
Why it matters: Despite a weaker macro backdrop, Coke increased sales across all regions, which we attribute to its focus on zero-sugar recipes, flavor and packaging innovations, and responsive in-market execution.
• Coke launched more affordable fares at attractive price points and refillable bottles, while expanding its distribution in value channels. This helped fuel a 2% rise in unit case volume, led by mid-single-digit increases in emerging Asia, the Middle East, and Africa.
• Consistent with our view that its localized supply chain should insulate it from trade policy changes, Coke confirmed the tariff impact should prove manageable. The firm held its 2025 outlook for organic sales to grow 5%-6% and adjusted earnings per share to grow 2%-3%.
The bottom line: We plan to raise our $66 per share fair value estimate for wide-moat Coca-Cola by a low-single-digit percentage on time value. Shares look fully valued, trading at 24 times 2025 earnings.
• Our 2025 forecast for sales to grow 2% incorporates currency headwinds of 330 basis points and more moderate price increases (4%) compared with low-teens annual hikes in the past three years as Coke has refined its affordability focus.
• Amid geopolitical and macro uncertainties, we view Coke as wise to enhance brand messaging with tailored content to connect with consumers. We forecast Coke to direct 11% of sales to marketing in 2025, up from a five-year average of 10%.
Coming up: We expect Coke’s priority on beverages with low calories and nutritional benefits to appeal to health-conscious consumers and fuel volume gains for the longer term.
• At 30% of total volumes, we expect low- or no-calorie beverages to grow based on recipe innovation and bottler enthusiasm.
• Its premium dairy, prebiotic soda, and vitamin-infused tea should also gain traction with consumers.
Coca-Cola Stock Price
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Fair Value Estimate for Coca-Cola
With its 2-star rating, we believe Coca-Cola stock is overvalued compared with our long-term fair value estimate of $66 per share, an increase from $64 per share, which implies a 22 times multiple against our adjusted 2025 earnings estimate and a 2025 enterprise value/adjusted EBITDA multiple of 19 times. In 2024, Coke posted strong results, including increases of 12% and 7%, respectively, in organic sales and comparable EPS. Notably, global unit case volume expanded 1% for the year despite consumer pullback and geopolitical uncertainties. For 2025, we now model sales to grow 2% (incorporating a 3% foreign currency headwind) to $48 billion, and adjusted EPS to expand 3% to $2.96.
On the profitability front, we model operating margins to widen by 110 basis points to 31.2% at the end of our 10-year forecast period, compared with 2024. While we expect limited gross margin expansion after notable gains in recent years from better efficiencies and a favorable mix shift driven by refranchising, we forecast better leverage in selling and distribution expenses (19.5% of sales by 2034 versus 20.1% in 2024).
Read more about Coca-Cola’s fair value estimate.
Economic Moat Rating
We believe Coca-Cola has built a wide economic moat around its global beverage operations based on strong intangible assets and a significant cost advantage that will enable the company to deliver excess investment returns above its cost of capital over and beyond the next 20 years. We have modeled the company to generate returns on invested capital, or ROICs, including goodwill, that average 37% throughout the duration of our 10-year explicit forecast, comfortably surpassing our estimate of its weighted average cost of capital at 7%.
As the world’s best-known beverage company, Coca-Cola owns a strong portfolio of storied and iconic brands that resonate with consumers around the world, making its products the beverage of choice on both at-home and away-from-home consumption occasions. The special connection that Coca-Cola cultivates and maintains with generations of consumers has enabled the firm to dominate the carbonated soft drink, or CSD, category at the core of its business (69% of Coca-Cola’s 2024 unit case volume sold).
Read more about Coca-Cola’s economic moat.
Financial Strength
We believe Coca-Cola has a strong balance sheet and ample liquidity to weather macroeconomic volatilities and invest for long-term growth. The company had $14.6 billion in cash and short-term investments on its balance sheet as of December 2024, $4.2 billion in backup lines of credit for general purpose use, and a well-established commercial paper program in the US enabling the firm to consistently access short-term funding at low rates. Leverage is manageable, with net debt/adjusted EBITDA at 2 times in 2024, within its long-term target of 2 to 2.5 times. We expect the metric to hold at low levels in coming years.
Read more about Coca-Cola’s financial strength.
Risk and Uncertainty
We assign Coca-Cola a Low Morningstar Uncertainty Rating. We view close bottler relationships as crucial to its business model and return profile, but in periods of high inflation, these relationships could be pressured as the bottlers tend to bear the brunt of cost increases. This is less of an issue in the US where local bottlers are small and have limited bargaining power, but in emerging markets—which hold the key to healthy volume growth—Coca-Cola faces much larger bottlers, such as Arca Continental and Coke Femsa, that are likely in a better position to negotiate.
Read more about Coca-Cola’s risk and uncertainty.
KO Bulls Say
• Coke can leverage strong bottler relationships in underpenetrated emerging markets to drive volume growth with classic recipes as well as new products tailored to local tastes.
• Heavy investments in a digitalized supply chain and data analytics have better aligned Coke and its bottlers in product planning, manufacturing, and go-to-market strategy.
• As Costa recovers from the pandemic-related disruptions, it should help Coca-Cola gain a firmer footing in the coffee category and provide more consumer insights, given its global footprint.
KO Bears Say
• Secular headwinds in carbonated soft drink demand in developed markets are a challenge to Coca-Cola’s long-term growth outlook.
• The company’s brand portfolio and product lineup in non-sparkling categories are less robust, and heavy investments are needed to bolster its competitive position.
• With two-thirds of revenue from international markets, Coke faces constant currency fluctuations that drive volatilities in reported earnings.
This article was compiled by Gautami Thombare.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
