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Coca-Cola to Deliver a Solid Performance

Value Line’s Market Focus newsletter took another look at The Coca-Cola Company (KO), a Dow-30 component and the world’s largest beverage enterprise.

The Georgia-based corporation produces and markets over 500 beverage brands through a network of company-owned and independent bottlers/distributors, wholesalers, and retailers. It employs more than 80,000 individuals and has a market capitalization of about $225 billion.

The beverage giant has felt the effects of business disruptions related to COVID-19 with unit volumes down amid social-distancing measures. This has had an outsized impact on the company’s restaurant and other away-from-home channels. These challenges will probably persist in the early going of 2021, but should start to ease as the year progresses. The rollout of the coronavirus vaccines will likely allow for a return to public spaces, which ought to bolster sales. All told, both the top and bottom lines should bounce back this year from relatively weak showings in 2020.

The company is contending with an unfavorable tax ruling. Based on a decision in U.S. Tax Court last November, Coca-Cola may face a potential liability of $12 billion for the underpayment of past taxes and related interest. The case also may lead to an increased tax rate in future years. The company is appealing the decision and believes it has strong ground to succeed.

Shares of KO are ranked to mirror the broader market over the coming six to 12 months. The issue garners our top rank for Safety (1) and Coca-Cola retains the highest grade for Financial Strength (A++). This equity offers attractive long-term total return potential, on a risk-adjusted basis.

While the tax dispute and COVID-19 represent uncertainties, we think that KO’s finances and leading market position in multiple arenas will help it weather the potential challenges and deliver a solid performance over the long haul. It also offers a dividend yield of approximately 3.2%, based on a secure payout.

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