Coca-Cola (KO)

Total return at 5 years: 2.9%/year = 0.2% appreciation + 2.7% dividend. The target price ($91) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $74 · Multiples $83) is below the market price ($90).

Today — expensive, no margin of safety: at $90 trades ~7.7% above its value discounted to today (~$83); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($91) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$53.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($90) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (9.5%/year) above our base case (5.5%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$19.4 bn of owner earnings in year 5 (vs ~$16.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta comparable (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Branded consumer staple: valued on P/E over comparable net income, which gives equity value directly (earnings are already after interest and taxes), with no enterprise-value-to-equity bridge. Rolling grid: year-0 is the TTM closed on July 3, 2026, built by levels from the second-quarter release (8-K of July 28, 2026) because the SEC API had not yet ingested that quarter: revenue of $50,129 million, GAAP operating income of $14,854 million, and comparable earnings of $13,213 million, i.e. a comparable margin of 26.36%. Year 1 anchors on the guidance the company raised again in that release, reading both of its anchors, not one: organic revenue of around 5% (raised from 4-5%) with around 1% FX tailwind and 2-3% drag from acquisitions and divestitures, which leaves reported revenue for the year at around 3.5%, and comparable EPS growing 9-10% (raised from 8-9%). The two anchors move in opposite directions and that's consistent, not contradictory: what's being divested is low-margin bottling, so revenue goes down and margin goes up. On the rolling window, year 1 grows just 1.6% in revenue — the second half of the fiscal year carries the full drag of the divestiture, with revenue down 2.1% against the same half of the prior year — and from year 2 it returns to organic without that drag, around 4.9%, decelerating to 4.0% by year 5. It's a valley-and-recovery path, not a monotonic deceleration, and it's declared as such because the valley has a proper name and a single year of life. The datapoint that most changes the read on the business this quarter is volume: unit cases grew 5% globally, against the flat volume the prior model carried, and the 6% organic growth splits into 4% concentrate sales and 2% price/mix. That reverses the split the thesis had been describing — where all growth was price — and directly weakens the argument of structural volume erosion from weight-loss drugs. The cash margin is normalized (29.4% of operating flow, consistent with the guided free cash flow of around $12,400 million on roughly $14,600 million of operating cash and $2,200 million of capex): the trailing year's operating flow (32.6% of revenue) runs above that level because the window has already left behind the one-time fairlife earnout payment and captured the full subsequent working-capital recovery. The tax rate is 19.9%, the underlying rate the company itself publishes in its guidance. Cash isn't accumulated: it distributes almost all of the flow as dividends and a modest buyback. The multiple compresses toward 22 times.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $91 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $90, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $91 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $83. Against the current market price ($90), the margin of safety is -7.7% (trades above the maximum → a premium is paid) and the total return at that price would be 2.9% annually.

• Multiple vs quality. P/E 29× — the most expensive of the staples, a marked premium over PepsiCo, for guided organic growth of ~5%.
• Reverse-DCF. For a 10% return, comparable EPS would need to grow ~13%/year (double the base, above the bull case).
• Margin of safety. Total return +3% < the 4% floor (inflation) and far from the 15% required → negative margin.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (101%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds the cost of capital. ROIC ~15% vs the 10% bar → solid value creation; capital-light concentrate model.
• Margin and stability. ~29% operating margin, ~62% gross margin — among the highest in the sector; very stable/predictable earnings.
• Cash quality. Normalized FCF ~$11bn ≈ net income (capital-light). The low reported FCF (FY24/25) is due to one-time payments (IRS, fairlife), not accruals. CFROIC (~12.7%) sits below ROIC (~15%) because of that same one-time fairlife earnout payment within trailing-twelve-month working capital, plus genuine growth capital expenditure (capacity expansion, including fairlife) above book depreciation — not a sign of earnings unsupported by cash.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a consumer staple is volume times price and mix, and this quarter the split flipped: unit cases grew 5% globally and the 6% organic growth came from 4 points of concentrate sales and 2 of price/mix, versus the prior reading of flat volume with all growth in price. Concentrate shipments trailed unit-case volume by a point on shipment timing. Around 60% of sales are international, so FX swings the reported figure; in the current fiscal year it's a tailwind, around one point.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (3-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. The organic rate (+5%) is real, but it is almost all price/mix — volume is flat (+1%).
• Growth engine. Brand pricing power. Volume is not growing; it depends on raising prices, with emerging elasticity.
• Deceleration and cycle. Organic fell from +12-16% (2021-24) to +5%; GLP-1 threatens volume going forward.

• Relevant in 10 years (recurrence). Daily, repeat, branded consumption — it will still be sold in 10 years. Very high recurrence.
• Pricing power. Strong: growth is almost all price/mix. But volume is already flat and elasticity is appearing in developed markets.
• Moat and its direction. Wide, stable moat (brand plus distribution). Direction: pressured by GLP-1 on sugary-soda volume.
• Capital cycle. Mature sector; the brand/distribution moat blocks capital entry. The risk is not competition but a shift in habits (GLP-1).

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.8x
• ✓Interest coverage (EBIT / interest)9.8x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 101% of ROIC
• ✓Value creation (ROIC − 10% bar)+8pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.8x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt $33bn (~2x EBITDA); manageable for a defensive business, A+ rating.
• Coverage and cash. Interest coverage ~8x; normalized FCF ~$11bn; low capex. Solid.
• IRS overhang. ~$20bn of unaccrued litigation exposure. KO believes it will win (8th Circuit precedent), but it is a tail risk.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Insiders <1%; the anchor is Berkshire (9.3%), a long-term value investor, not insiders. Orderly (internal) CEO transition.
• Capital allocation. Dividend aristocrat (64 years) plus modest buybacks plus low capex. But BodyArmor ($1.7bn impairment) was poorly executed M&A.
• Integrity / normalization. Compensation tied to organic revenue plus comparable EPS plus FCF. Clear reporting. IRS litigation disclosed transparently in the notes.

• No discount source: it trades at a full multiple of earnings.
• The market pays a premium for defensiveness and stability, and the quarter delivered it: volume up 5%, guidance raised on both anchors, and comparable margin expanding almost a point.
• The known risks (weight-loss drugs, the tax litigation) are already in the narrative, and this quarter's volume weakens the first one — but the price leaves no return beyond the dividend.

With no missing buyers or motivated sellers, it isn't cheap: it's a great defensive business at a defensive-stock price. The total return (+3%) doesn't cover expected inflation. The quarter's news cuts the other way from usual: volume growing 5% improves the business, not the entry price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -3%/year (-16% total): the margin of safety protects the downside. The bull (+6%/year, +35% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• GLP-1 (volume). The structural disconfirmer: obesity drugs reduce sugary-beverage consumption (33-77% of users).
• Defensiveness multiple. 29× for guided organic growth of ~5% with flat volume — multiple compression if growth disappoints.
• IRS litigation. ~$20bn of exposure; 11th Circuit ruling imminent (~$3.2/share if lost).
• Pricing / elasticity. Volume is already flat; growth depends on price, with emerging elasticity in developed markets.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 18% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 5.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 18% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 9% vs our 6%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +4%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 9% vs our 6%: coherent, but at the optimistic end of the range.