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As part of our ongoing series, each week we typically conduct a DCF on one of the companies in our screens. This week, we’re analyzing one of the most iconic consumer brands in the world — The Coca-Cola Company (KO).
 

Profile

The Coca-Cola Company (KO) is a global beverage leader with a portfolio of over 200 brands, including Coca-Cola, Sprite, and Fanta. With unmatched global distribution, strong brand equity, and pricing power, Coca-Cola remains a staple in consumer portfolios.
 

DCF Analysis

Inputs

Discount Rate: 10%
Terminal Growth Rate: 3%
WACC: 10%

Forecasted Free Cash Flows (FCFs) in billions

Year  FCF (billions)  PV (billions)
2025  4.0        3.64
2026  5.0        4.13
2027  6.0        4.67
2028  7.0        5.35
2029  8.0        5.30

Total Present Value of FCFs = 23.09 billion

Terminal Value Calculation

Using the perpetuity growth model:

Terminal Value = (FCF_2029 × (1 + g)) / (r – g)
= (8.0 × 1.03) / (0.10 – 0.03)
= 8.24 / 0.07
= 117.71 billion

Present Value of Terminal Value = 117.71 / (1.10)^5 = 73.10 billion

Enterprise Value Calculation

Enterprise Value = Present Value of FCFs + Present Value of Terminal Value
= 23.09 + 73.10
= 96.19 billion

Net Debt Calculation

Net Debt = Debt – Cash
= 44.52 – 14.57
= 29.95 billion

Equity Value Calculation

Equity Value = Enterprise Value – Net Debt
= 96.19 – 29.95
= 66.24 billion

Per-Share DCF Value

Shares Outstanding = 4.3 billion
Per-Share DCF Value = 66.24 / 4.3 = $15.40
 

Conclusion

DCF Value: $15.40
Current Price: $70.24
Margin of Safety: –78.1%

Based on this DCF valuation, Coca-Cola appears significantly overvalued. The calculated intrinsic value of $15.40 per share is well below the current market price of $70.24, resulting in a negative Margin of Safety of –78.1%.

While Coca-Cola offers durable earnings, a wide moat, and consistent dividends, its current valuation is difficult to justify given the steep decline in free cash flow. Unless FCF recovers meaningfully in the near term, the stock’s upside appears limited based on conservative assumptions.

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