Will Coca-Cola continue to lift investors’ spirits?

Coca cola (K.O 1.44%) the stock has performed strongly this year as the soda maker continues to deliver strong revenue and earnings growth, largely due to solid pricing power. The stock is now up more than 20% so far in 2024.

Looking to further fuel growth, the company is now turning to spirits in an attempt to boost sales. Let’s examine the company’s strategy and whether the stock could be a buy at current levels.

It expands its range of alcoholic beverages

Although known for its iconic Coca-Cola soda brand, Coca-Cola has long been a leader in a number of other beverage categories, including juice, water, sports drinks, and even coffee. Its popular brands in these categories include Minute Maid, Dasani, Powerade, Vitaminwater and Costa.

However, one category it is just starting to enter is alcoholic beverages, which it does through its subsidiary Red Tree Beverages. While Coca-Cola has been experimenting with alcoholic beverages in Japan since 2018, it began its larger push into alcoholic beverages a few years ago.

First, it introduced a hard version of Topo Chico Seltzer in 2021, then followed it up the following year when it partnered with producer Jack Daniels. Brown Forman to create a ready-to-drink version of the Jack and Coke cocktail in a can and with Molson Coors on Simply Spiked Lemonade.

This year, the company has introduced a number of new alcoholic beverages to its range. It partnered with Pernod Ricard to create a canned Absolut Vodka and Sprite cocktail, which it introduced to several European countries. In the first half of this year, it also introduced Minute Maid Spiked in the US. The wine flavored cocktails will come in 1.5 liter bottles and will be available in lime margarita, strawberry daiquiri and pina colada flavors.

Earlier this month, the company announced it was partnering with Bacardi for a ready-to-drink version of rum and coke cans. The drinks will initially be available in select European countries and Mexico next year. It also announced a limited-time Jack and Cherry Coke drink.

Pushing Coca-Cola into premixed alcoholic cocktails makes a lot of sense. Many of its alcoholic mixed drinks are already bar favorites, so this is a natural extension for the company. Additionally, pre-mixed alcoholic cocktails are one of the fastest growing beverage categories. According to the U.S. Distilled Spirits Council, the category grew nearly 27 percent in the U.S. and was the fifth best-selling spirit by revenue, with $2.8 billion in sales in 2023.

Image source: Getty Images.

Is Coca-Cola stock a buy?

There’s a reason Coca-Cola has long been one of famed investor Warren Buffett’s biggest holdings. The company has one of the most recognizable brands in the world and that brand equity is extremely valuable. It also helped give the company great pricing power.

Caseload growth for the company has been relatively modest recently. Last year, unit volume growth was just 2%, and it has grown by a similar amount so far this year, with 1% growth in Q1 and 2% in Q2. However, the company grew its revenue strongly, with organic revenue growth of 15% in Q2, led by 9% price and mix growth, and organic revenue growth of 11% in Q1, with a 13% increase in price and mix. .

Data on KO PE ratio (forward 1y) by YCharts

Given the strength of the brand and the defensive nature of the business, Coca-Cola stock generally trades at a healthy valuation multiple. The current forward price-to-earnings (P/E) ratio is below 24, which is consistent with where the stock has often traded over the past few years.

While not in the bargain bin, Coca-Cola is a solid growth mix, and if alcohol sales can help boost sales in the coming years, it looks like an attractive option for investors at current levels.

Coca-Cola’s pricing power combined with its push for ready-to-drink alcoholic cocktails is an intriguing mix that should help drive growth in the years ahead.