Is The Coca-Cola Company (KO) Undervalued at a 26% Discount to Intrinsic Value?

The Coca-Cola Company (KO) has long been a cornerstone of the consumer staples sector, celebrated for its brand resilience and consistent cash flows. Yet, as of July 2025, the stock trades at $69.85—a price that appears to reflect caution in the face of macroeconomic volatility. To assess whether this represents a compelling long-term entry opportunity for income-focused investors, we turn to discounted cash flow (DCF) modeling and technical indicators.

DCF Analysis: A 26% Discount to Intrinsic Value?

To estimate KO's intrinsic value, we start with its projected free cash flows. For 2025, the company expects $9.5 billion in free cash flow (excluding the fairlife contingent payment), driven by organic revenue growth of 5–6% and disciplined cost management. Using a WACC of 6.42% (derived from a 6.94% cost of equity and 3.67% cost of debt), we discount these cash flows over a 10-year horizon, assuming a 3% terminal growth rate (aligned with long-term GDP growth).

The DCF model yields an intrinsic value of $95.50 per share, suggesting the stock is currently trading at a 26% discount to its estimated fair value. This premium is underpinned by KO's robust free cash flow generation, even after accounting for one-time charges like the IRS tax litigation deposit. While the company faces near-term headwinds (e.g., currency fluctuations, higher tax rates), its 14.63% ROIC—well above the WACC—indicates strong capital allocation discipline.

Technical Indicators: A Mixed but Manageable Outlook

Technical analysis of KO's stock in July 2025 reveals a nuanced picture. The 14-day RSI of 47.35 suggests a neutral stance, while the MACD (-0.22) and Williams %R (-71.04) hint at potential oversold conditions. Moving averages, however, present conflicting signals: the 5-day and 200-day averages favor a buy, whereas the 50-day and 100-day averages lean toward a sell. This divergence reflects short-term volatility but underscores a long-term bull case for the stock.

The ADX (13.71) and CCI (7.96) further reinforce a weak trend, implying that KO is unlikely to break out of its $68.80–$72.45 range without a catalyst. For patient investors, this could represent an opportunity to accumulate shares at a discount, particularly as the stock approaches key support levels (e.g., $68.79).

Income-Focused Investors: Dividend Stability and Growth

KO's dividend history is a critical consideration for income-focused investors. The company has increased its dividend for 62 consecutive years, and with a current yield of 3.5%, it offers a compelling proposition. Despite the 2024 EPS decline (primarily due to non-recurring charges), the $2.88 comparable EPS (Non-GAAP) in 2024 and the projected 2–3% EPS growth in 2025 suggest the dividend is well-supported.

Moreover, KO's capital allocation strategy—including $4.9 billion remaining in share repurchase authorization—positions it to enhance shareholder value through buybacks, especially if the stock remains undervalued.

Risks and Considerations

While the DCF model and technical indicators point to a favorable setup, investors must weigh several risks:
1. Currency headwinds: A 3–4% drag on 2025 net revenues could pressure margins.
2. Tax uncertainty: The effective tax rate is expected to rise to 20.8% in 2025, reducing net income.
3. Competitive pressures: The beverage industry remains highly competitive, with plant-based and health-conscious trends challenging traditional soda sales.

However, KO's refranchising strategy, diversified product portfolio, and strong balance sheet (with $300.65 billion in market cap) provide a buffer against these risks.

Conclusion: A Buy for the Long-Term

The Coca-Cola Company's current valuation—26% below intrinsic value—presents an attractive entry point for long-term investors. While short-term volatility and macroeconomic headwinds persist, the company's free cash flow resilience, dividend reliability, and global scale make it a defensive play in uncertain markets. For income-focused investors, the combination of a 3.5% yield and potential for capital appreciation (as the stock converges toward its intrinsic value) is hard to ignore.

Investment Recommendation: Buy KO at current levels, with a target price of $95.50 over 3–5 years. Monitor technical support levels and earnings releases (next on July 21, 2025) for confirmation.