AI Marketing And Refillable Products Will Drive Future Beverage Market Expansion

Key Takeaways

• Expanding refillable offerings and digital platforms is set to drive volume growth, reduce costs, and enhance revenue through customer reach and customization.
  
• Investment in marketing, technology, and equipment aims to boost consumption and efficiency, supporting top-line and long-term earnings growth.
  
• External challenges, including currency fluctuations, inflation, tariffs, and regulatory changes, could affect Coca-Cola's revenue, margins, and consumer demand.

Catalysts

A beverage company, manufactures and sells various nonalcoholic beverages in the United States and internationally.

• Expansion of the refillable offerings in regions like ASEAN and South Pacific is expected to drive significant volume growth, enhancing revenue and potentially improving net margins by lowering packaging costs.
  
• Increasing digital customer platforms and outlet expansion, especially in markets like India, creates opportunities for tailored product offerings, which is likely to boost revenue through greater customer reach and product customization.
  
• Leveraging integrated marketing campaigns and technological innovations (e.g., AI in advertising), Coca-Cola aims to increase marketing efficiency and effectiveness, which could help maintain or improve operating margins and grow earnings.
  
• Investment in cold drink equipment is anticipated to drive higher consumption volumes. By increasing the placement of these units, Coca-Cola seeks to boost immediate consumption channels, positively impacting top-line growth and earnings.
  
• New product innovations and successful product line expansions—such as Fuze Tea's growth and the broad portfolio of billion-dollar brands—are expected to continue driving revenue growth, supporting both the top line and long-term earnings potential.

Coca-Cola Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coca-Cola's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.6% today to 27.0% in 3 years time.
• Analysts expect earnings to reach $14.4 billion (and earnings per share of $3.4) by about March 2028, up from $10.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, down from 28.1x today. This future PE is lower than the current PE for the US Beverage industry at 28.1x.
• Analysts expect the number of shares outstanding to decline by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Coca-Cola Future Earnings Per Share Growth

Risks

• Continued macroeconomic headwinds and currency devaluations, particularly in regions like China and Latin America, could negatively impact Coca-Cola's revenue and profit margins.
  
• The impact of bottler refranchising is expected to be a headwind to comparable net revenues and earnings per share in 2025, which could pressure the company's earnings.
  
• The external environment is expected to remain dynamic, with potential new tariffs on key materials like aluminum impacting the supply chain and cost structure, possibly affecting net margins.
  
• Intense inflationary pricing in specific markets, although moderating, poses a risk of fluctuating consumer demand and could affect price stability and overall revenue growth.
  
• The potential impact of regulatory changes and new consumer trends, such as GLP-1 drugs, may lead to shifts in consumer preferences or additional costs, which could affect the company's revenue and sales growth trajectory.

Valuation

• The analysts have a consensus price target of $74.637 for Coca-Cola based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $85.0, and the most bearish reporting a price target of just $59.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $53.1 billion, earnings will come to $14.4 billion, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 6.2%.
• Given the current share price of $69.38, the analyst price target of $74.64 is 7.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.