All of the paeans to Coca-Cola (NYSE:KO) have some basis in truth. Coca-Cola is indeed a remarkable company and a living case study in the value of strong brands and knowing the customer's tastes and expectations. But Coca-Cola is not necessarily the safe stock that everyone assumes it to be. While Coca-Cola will certainly be around for decades to come, paying too much for even a great company's stock can erode a lot of the safety that is supposed to go with the strategy.

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A Respectable Third Quarter
Coca-Cola basically did as analysts expected it would in the third quarter. Reported revenue rose 45% this quarter, with the overwhelming majority of that "growth" coming from the addition of Coca-Cola Enterprises (CCE). Global case volume growth was about 4% and factor in some modest price increase, Coca-Cola's organic growth rate looks like it was in the range of 6-8%. Encouragingly, while growth in North American remains sluggish (not unlike what rival PepsiCo (NYSE:PEP) has reported), emerging market growth is pretty healthy and especially good in Latin America.

Coca-Cola is paying a price for both commodity inflation and the CCE acquisition. Gross margin fell more than five points this quarter, and operating income grew 17% (or 15% in constant currency) as the operating margin shrank more than five points. Given the price hikes at packaging companies like Crown Holdings (NYSE:CCK) and Ball (NYSE:BLL), that is not so surprising, but Coca-Cola is somewhat limited in how much it can pass through before pushing price-sensitive customers to the likes of Cott (NYSE:COT) and other private label manufacturers.

Should Coca-Cola Be More Like PepsiCo?
One of the interesting debates that often swirls around Coca-Cola is whether the company needs to emulate companies like PepsiCo and Nestle (Nasdaq:NSRGY) and become a more diversified company. Non-carbonated beverages like fruit juices, sports drinks and bottled water have certainly gained some share on sodas in North America, and Coca-Cola was somewhat slow to get into the market.

By the same token, compare the returns on capital between Pepsi and Coke and ask yourself if Coca-Cola is the company that needs to change. True, the acquisition of CCE is going to lower the company's returns, but it should still be well ahead of its rival when the dust settles. Moreover, there is a great deal of growth potential in markets like China, India, Russia and other emerging markets where rising standards of living are making Coca-Cola products something more than just an occasional luxury.

A Different Carbonated Beverage
If Coca-Cola was to think about expansion, the brewing industry might make more sense than trying to bolt on a snack foods business like PepsiCo's Frito Lay. Brewing shares quite a few operational similarities and it would further leverage Coca-Cola's amazing international distribution capabilities.

Coca-Cola has never seemed too enthusiastic about this industry, but if there is a time to reconsider, this is it. Anheuser Busch-Inbev (NYSE:BUD) is reportedly on the prowl for a big deal and there are increasingly few targets worth Coke's time. Perhaps a deal for Molson Coors (NYSE:TAP), Carlsberg or Heineken would make long-term strategic sense for Coca-Cola as it plays on the same global trend of rising incomes.

The Bottom Line
However intriguing an expansion into brewing may be on paper, Coca-Cola is unlikely to do it, so investors are likely well served evaluating Coca-Cola on the assumption that its future will largely resemble its present. Along those lines, it's a great company with a solid and enduring business.

That does not make it a great stock, though. While Coca-Cola's total return likely won't trail the S&P 500 by much (if at all) and it's a safer pick than the index as a whole, there are cheaper stocks out there today. While Coca-Cola's business means the company is safe, overpaying for any stock can turn a safe haven into a disappointment. (For additional reading, take a look at Take On Risk With A Margin of Safety.)

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