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Valuing Coca Cola Stock

In: Business and Management

Submitted By mgsandoval
Words 1225
Pages 5
Valuing of Coca Cola Stock and Analysis
Andrew Burgoyne, James Desimone, Bailey Fowble,
Hewei Huang, Ryan Leist, Maria Sandoval University of South Florida
FIN 4414

Abstract
Taking the role as Jessie Jones, we will analyze whether to recommend the Coca Cola stock to potential clients or current clients that do not have it in their portfolio. By using the Capital Asset Price Model (CAPM), Dividends Discount Model (DDM) and the Price/Earnings (P/E) ratio we will come to a conclusion.

Background
The Coca Cola Company, which is based out of Atlanta, Georgia, is a leader in the global soft drink market. It owns subsidiaries in over 195 countries around the world but has always remained local. According to the most recent Value Line (1997) report, revenues and profits were expected to continue to grow for the rest of the year but still be weaker than the current year. They forecasted that Coca Cola would meet their goal of increasing profits by 15% each year for the next 3-5 years due to the expanding soft drink market.
Jessie Jones, an Investment Advisor with a major brokerage firm, wondered whether she should recommend the Coca Cola stock to any of her potential clients or current clients that did not already have it in their portfolios. Jessie noticed that the current price of Coke slipped to $58 per share with a price/earnings ratio of 35x and dividends yield of 1%. The methodologies used to value the stock of Coca Cola are: CAPM, DDM and P/E ratio.
Assumptions
In order for us to adequately use the following valuation tools, certain assumptions had to be made concerning the discount rate, risk free rate and the market rate of return. Since the case represents historical data we continued the trend and used historical data from that time to base our assumptions. The first assumption was the discount rate, according to research.stlouisfed.org…...

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