This 'Elite' Beverage Business Is Still On Sale

Regular readers know we're always on the lookout for buying opportunities among the "Global Elite"...

These companies need little introduction. Here at Stansberry Research, we use this phrase to describe the best companies in the world. They have brands that are well-known all across the world. And they dominate their industries, allowing them to have fortress-like balance sheets.

When they fall 10%, we get interested. When they fall by more than 20%, we really get interested.

While the broader market has surged 47% from its March lows, today's company has lagged. And that could create a great buying opportunity for this "Global Elite" business...

Coca-Cola (NYSE: KO) is the world's largest nonalcoholic-beverage company. Its primary product is carbonated soft drinks (CSDs). Based on volume, Coca-Cola controlled 44% of the $314 billion global CSD market in 2019. Its next-closest competitor is PepsiCo (PEP), which controls just 19%.

In total, Coca-Cola generates $37.3 billion a year in annual sales – of which 31% are in the U.S. and 69% are international. Two-thirds of Coca-Cola's sales come from CSDs.

The company's goal is to be the "total beverage company" – meaning it wants a strong market position in every category of the world's $550 billion-per-year soft-drink market... including those targeting the increasing number of consumers moving away from sugar. Accordingly, Coca-Cola continues to add non-CSDs and low-calorie drinks to its product lineup.

And as we mentioned before, it's a well-known brand all across the world...

In 2019, Forbes ranked Coca-Cola's brand alone to be worth $59 billion – the sixth-most-valuable brand in the world and the most valuable brand outside of tech.

Some of the company's best-known brands include soft drink brands like Coca-Cola, Sprite, and Diet Coke. But it also owns popular juices like Minute Maid and Simply, as well as sports drinks Powerade and Vitaminwater.

These are just the tip of the iceberg for Coca-Cola's beverage portfolio... The company estimates it has 21 brands worth more than $1 billion each. Not only are these brands well-known, but they have incredible brand loyalty. And that's a huge boost for Coca-Cola.

Coca-Cola focuses on marketing and licensing these brands. It sells beverage concentrates and syrups to its network of bottling partners (more than 200 across the planet), who then handle production, distribution to wholesalers and retailers, and local marketing. It's the world's largest beverage-distribution system.

This model makes Coca-Cola more capital efficient than if it was doing all the bottling and production itself. It reduces the need to spend on plants and equipment, which helps Coca-Cola consistently produce strong FCF – $8.4 billion in 2019, or 23% of sales.

Coca-Cola loves to reward shareholders, too. The company has increased its dividend payout every year for 58 consecutive years, making it one of the market's few "Dividend Aristocrats."

Even more impressive, Coca-Cola has done this despite seven recessions over that period. And earlier this year, it raised its dividend payout, even amid the disruptions from the coronavirus pandemic. If Coca-Cola continues its dividend throughout the current recession – and it looks like it will – it would mark eight recessions that the company has not only kept its dividend, but raised it.

Like many businesses, Coca-Cola has taken a hit from the coronavirus.

While its "at home" business is seeing strong sales because people are stocking up while stuck at home, it comes at the expense of its sales at places like restaurants and sporting events. This slump in "away from home" distribution channels caused global unit case volumes to fall 25% at their bottom in April.

As a result, Coca-Cola's shares fell more than 37% from their February 21 high to their March 23 low.

But the recovery is on...

Case volumes were down 10% in June. And in July and August, they were only down "mid-single digits." Coca-Cola said the improvement has been driven by "away from home" sales as economies reopen and people become more comfortable going out. And the company said it expects this trend to continue throughout the second half of 2020. That bodes well for continued recovery in Coca-Cola's sales.

This recovery has driven a rebound in Coca-Cola shares. Since their March low, the stock has risen nearly 30%. But it still remains 19% below its February high.

Coca-Cola has one of the best businesses in the world. It has a leading position in almost any market it enters. And its operations are recovering strongly from the hit they took at the height of the pandemic. So while its shares may be "on sale" today... they likely won't be for long.

Sometimes investing is simple.