Will Declining Soda Consumption Drag Coca Cola Stock?

The major problem for Coca Cola here as Alex sees it, is the reason for a reduced consumption. According to data put together from sources, Alphawise and Morgan Stanley Research, the biggest factor that's triggered the reduced consumption is sugar content in these CSDs. That segment constitutes about 62% of the reason for reduced consumption. This compares with 12%, who found a change in the taste, and just 9% who reduced consumption because of the prices and 4% who attributed the reduction to a change in the product consumed. So that's a big problem for Coca Cola, given that the vast majority of reduced consumption is coming from factors that are inherent to these products.

Alex cites the Trefis model to look at where the profits are coming in for Cola Cola. Coca Cola has $8 billion coming in gross profit. Bulk of that comes from CSDs, which is bulk of Coca Cola's business.

Alex Xu has a hold rating on Coca Cola stock. He thinks that Coca Cola stock is overvalued at 21 times forward earnings, although Coca Cola is cheaper than its peers in the industry, like Monster, PepsiCo., (PEP) etc. Coca cola is facing tax issues, which Alex highlights as one of the things investors have to keep in mind while evaluating Coca Cola stock. He thinks that consumption will remain relatively flat, which could hurt Coca Cola's revenue trajectory in the near term.

To sum up, Alex Xu thinks that Coca Cola isn't all that attractive right now for investors who want to take fresh positions in Coca Cola stock.

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Disclosure: I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 ...

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