For Long-Term Growth and Stability, Coke Is It

I just shake my head in disbelief at some companies. Somehow, these companies
keep growing even though it seems like they shouldve gone stagnant long ago. If
anything, its a testament to just how big the world really is, and how many
products a company might have that you didnt even know about. Coca-Cola (NYSE:
KO ) has hundreds of brands most people will never hear of because many are
unique to various regions. The Wikipedia page shows you exactly what the story
is, but a quick scan yields these familiar names: Coke, Fanta, Dasani, Bacardi
Mixers, Mello Yello, Enviga, Five Alive, Full Throttle, Fuze, Godiva
Coffee/Chocolate drink, Hi-C, Lift, Minute Maid, Nestea, Odwalla, Seagrams,
Simply Orange and Smart. No wonder the company still is growing. No wonder
Warren Buffetts Berkshire Hathaway (NYSE: BRK.A ) owns it. The financials for
the company are nothing short of staggering. Did you think people could consume
enough Coca-Cola products to generate $46.58 billion in revenue this year?
Neither did I. And that number is projected to grow another 5% to $49 billion
next year. This is supposed to generate earnings of $3.88 per share this year
(13% growth) and $4.30 next year (11% growth). The five-year projected
annualized earnings growth rate is pegged at 9.23%. Some might look at the
stocks $67 price tag, do the math and ask why they should pay 17 times earnings
for a stock whose growth rate is half that. Its a fair questions, and thats why
certain companies deserve a premium because of their brand name, financial
stability, dividend payout, management and cash flow. If all the varying factors
come together in the right way, that price can seem downright cheap for what one
gets. In each of the last three full fiscal years, which includes the recession,
Coca-Cola generated free cash flow of $7.33 billion, $6.19 billion and $5.61
billion, respectively. Coca-Cola is generous to its shareholders, paying out
dividends of $4.07 billion, $3.8 billion and $3.5 billion, respectively, in
those years. So Coca-Cola is giving roughly 60% of its free cash back to its
shareholders. Right now, that translates to a 2.8% yield. Coke sits on more than
$11 billion in cash, by the way. And yet, the companys balance sheet is so
solid, KO chose to draw down $9 billion in debt in 2010 to further grow the
company, and its $14 billion in total debt is only costing Coke about 5% per
year. Oh, and one more thing. You know who else thinks shares of Coca-Cola are
so cheap that he purchased 525,000 shares in recent months at prices between $61
and $64? None other than IAC/InterActiveCorp (NASDAQ: IACI ) chairman and
legendary media mogul Barry Diller. You do the math. I say Coca-Cola is a buy
right here, right now, for the very long term. Lawrence Meyers owns shares of
Coca-Cola.