New Idea Could Boost KO Stock
UPDATE March 17, 2015: A previous version of this story implied Coca-Cola was already using blockchains. The company is exploring – not using – this technology for marketing purposes. This story has been corrected.
The Coca-Cola Co (NYSE:KO) had a lackluster 2015. Yet, Coca-Cola stock has had an almost constant rise since the middle of January 2016. It is now trading at more than $45.00 per share, its highest level ever. That’s saying a lot for a company that’s more than a century old. The Street sees Coke stock heading to $45.86, based on a Zacks consensus.
Not surprisingly, Coca-Cola stock features prominently on Warren Buffett’s portfolio. No doubt, Mr. Buffett must have smiled as KO stock achieved a record-high of $45.35 on March 14. This is especially bullish considering the last time Coke was trading at this altitude was in July 1998.
So far in 2016, Coca-Cola stock has gained about 5.5%. It is the very definition of a safe and Warren Buffett-worthy investment, given that in the same period the Dow dropped 1.1%. (Source: “Coca-Cola Gives Warren Buffett Something to Smile About,” The Street, March 14, 2016.)
While some on Wall Street may view the rise in Coca-Cola stock as a function of investors seeking safe-haven investments in a volatile market, there are likely several other more important reasons driving the ascent. That is despite pressured sales of sugary soda; Coca-Cola is being run more efficiently. It can expect pockets of growth outside of its core soda business.
In 2015, global economic volatility and the surging U.S. dollar accounted for Coke’s mixed performance. Yet both patterns persist and the U.S. dollar is heading even higher, given the constraints in the eurozone and Asia.
Indeed, Coca-Cola boasts favorable indicators of its own that have contributed to KO stock’s uplift this year. This inherent strength and ability to withstand pressure from external factors is what makes KO stock a reliable investment.
Despite a fall in overall revenue streams, Coca-Cola has not suffered any sort of financial pressure. Coke has indeed allocated the same amount of money to its international marketing and investment efforts over the last six financial quarters.
Of course, soft drink sales have been slow, losing ground in the U.S. and Canada over the last 10 years or so. This is mostly due to consumers being more health-conscious and the trend towards avoiding high-sugar beverages in favor of less calorie-rich drinks. (Source: “The Decline of ‘Big Soda’,” The New York Times, October 2, 2015.) This trend is even more pronounced in Europe. (Source: “Soft drink sales hit a decade of decline,” CNBC, March 26, 2015.) However, Coca-Cola has adapted to the patterns, offering healthier beverages after having acquired a wide portfolio of juice, coffee, tea, and energy drinks.
Coca-Cola has also pursued an aggressive cost-cutting strategy. It could cut as much as $3.0 billion in expenses by 2019. (Source: “Why $3 Billion Is The Most Important Number Underlying Coke’s Q2 Earnings Report,” Forbes, July 22, 2015.) The refranchising of bottling operations is the focus of the cost-cutting measures. Coca-Cola’s bottling activities have always hurt its overall profit margins. A move to refranchise its bottling segment could go a long way toward offsetting Coke’s costs.
But Coke is also about marketing innovation. Coca-Cola is looking forward to the totally connected world. The brand is stepping up efforts to connect to beat the competition and allow consumers easier access to its products. This is the “Internet of Things” and Coca-Cola is planning to integrate it into its business faster than its rivals. In fact, this is already happening.
Through its wide network of automatic vending machines, ever more linked to the Web, Coke will be able to gather a multitude of data about the brand in order to retain customers. This spring, through an application available on “iOS” and “Android,” a new service will allow consumers to buy a Coke in a connected machine, accumulate points, and then get a free drink. As a way to know where and when people buy its products, the Coca Cola is exploring the use of Blockchain technology. This is a database that reveals how each stage of the value chain works. (Source: “Coca-Cola shares its vision of advertising in a connected world,” The Drum, March 13, 2016.)
The brand will not have to create its own application because its machines are compatible with “Android Pay” and “Apple Pay.” Coca-Cola also wants its suppliers to benefit from the exchange of data. Component suppliers, for connecting machines, will have access to data to help improve performance or to notify them of necessary repairs when needed.
Coca-Cola’s use of IoT could ensure that Coke stock continues to set new records in 2016.