With its strong brand name, intangible assets and cost efficiencies, the Coca-Cola Company (NYSE: KO) stands tall among its rivals in the beverage industry. Recently, the company announced 2020 Vision, a program under which it plans to increase its beverage production volume by 3 to 4% and reinvigorate growth in its earnings. With U.S. consumer tastes shifting to healthier drinks, emerging markets are playing a more important role in driving the company's growth. To examine Coca-Cola's relative value and profitability, it is worth investigating the company's price-to-earnings (P/E) ratio, dividend yield, operating margin and return on invested capital (ROIC).

Price-to-Earnings Ratio

The P/E ratio compares companies across industries or sectors based on their potential to grow their earnings per share (EPS). A higher P/E ratio may indicate that a company has better expected EPS growth prospects, higher net margins, lower risk, a higher payout ratio or a combination of any of these factors. Typically, expected earnings growth plays the most dominant role in determining a company's P/E ratio.

Coca-Cola's P/E ratio stood at 27.4 in February 2016. To put this number into historical perspective, from 2006 to 2015, the company's P/E ratio ranged between a 12.9 low in 2011 to a 27.5 peak in 2015, with an average of about 20. For the same period, the company's P/E ratio was consistently higher than that of an aggregate P/E ratio for the S&P500 index by a high margin, except for 2010 and 2011 when Coca-Cola experienced a slowdown in sales and earnings growth.

The company's 27.4 P/E ratio is slightly below the beverage industry's 28 average. Compared to its closest competitors PepsiCo, Monster Beverage and Dr Pepper Snapple Group, Coca-Cola has a 15.24% net margin, which ranks second after Monster Beverage's 19.88. Coca-Cola's EPS is expected to grow by 4.6%, which is below its closest competitors' expected earnings growth rates, which range between 6.8 and 22.5%. However, when net margin and expected growth are taken together, Coca-Cola's P/E ratio looks justified relative to its peers. A deeper analysis should incorporate risk into relative valuation.

Dividend Yield

Dividend yield says how much return a company's common stock investors would generate in dividends for a given price. Dividend yield is an especially important metric for income-seeking investors interested in received cash flows from a stock without having to sell it. In February 2016, Coca-Cola had a 3.1% dividend yield and a 2.8% five-year average yield. The company's dividend yield well exceeds the 2.7% beverage industry average yield and the S&P500's 2.4% average yield. The figure is also somewhat higher than the 2.8 and 2.1% yields of PepsiCo and Dr Pepper Snapple Group, respectively.

With cost-saving initiative, Coca-Cola has ample room to improve its profitability and continue generating free cash flows to pay dividends, which grew by 5 to 10% on average from 2010 to 2015.

Operating Margin

Operating margin indicates how much operating profits a company generates in proportion to its net sales. Coca-Cola's strong brand awareness allows it to charge premium prices compared to its closest competitors. This, coupled with cost efficiencies and large economies of scale, allows the company to generate a much greater operating margin than its peers. From 2005 to 2014, the company's average operating margin stood at 24.2%. However, this figure began declining towards 2015 and was 19.2% for the trailing 12-month period ending on Sept. 30, 2015. Still, the company's current operating margin exceeds its closest rivals, except for Monster Beverage, which has a richer relative valuation compared to that of Coca-Cola.

Return on Invested Capital

The ROIC tells how much after-tax operating profits a company earns in relation to its employed capital, which includes net debt and common equity. ROIC is an especially useful metric to compare companies with different debt capital levels. ROIC that is higher than the cost of capital says that a company is generating value for its shareholders based on existing investments.

Historically, Coca-Cola has enjoyed a high ROIC, which averaged 18.7% from 2005 to 2014. However, due to mounting pressures on profitability and lackluster growth in carbonated drinks in the United States, the company's ROIC declined to 9.58% for the trailing 12-month period ending on Sept. 30, 2015. The company's return actually lags behind its rivals in this metric, compared to PepsiCo's 11.18%, Monster Beverage's 17.66% and Dr Pepper Snapple Group's 16.44% ROIC.

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