Still Creating Shared Moments: Long Coke

Rationale

Despite the world's largest beverage company lowering it's FY19 outlook, we believe that this industrial staple will be able to leverage its brand strength, mastery of the legal landscape, and pricing power, to drive mid-single-digit organic sales growth over the long term.

Based on various macroeconomic reports, we predict that the long run growth of the beverage industry of approximately +4% justifies a premium valuation to its peers. Additionally, we continue to appreciate Coca-Cola's efforts to innovate within its portfolio and expect new product launches and line extensions to help it adapt to evolving consumer tastes, ensuring its share and pricing power remain intact over the long run. With brands like the Honest Tea and Vitamin water, Coke's portfolio is well diversified enough to be a long term bull.

Key Investment Risks

Sparkling soft drinks account for more than 60% o f the firm's unit case volume in the U.S., where per capita soda consumption has been falling for the last decade. Additionally, taxes on sugary beverages could limit volume gains, particularly in higher-margin developed markets. Increasing sales from lower-margin noncarbonated beverages, like certain juices, could weigh on profitability, though Coke is sufficiently insulated as it holds many of these brands in its comprehensive portfolio.