Will a Push Into Alcoholic Beverages Continue to Lift Coca-Cola Investors’ Spirits?

Coca-Cola (KO 1.44%) stock has been a strong performer this year as the soda maker continues to deliver strong revenue and earnings growth largely on the back of solid pricing power. The stock is now up more than 20% so far in 2024.

Looking to further kick-start growth, the company is now turning to alcoholic beverages in a bid to boost sales. Let’s examine the company’s strategy and whether the stock could be a buy at current levels.

Expanding its alcoholic beverage lineup

While known for its iconic Coke soda brand, Coca-Cola has long been a leader in a number of other beverage categories, including juices, water, sport 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 get into is alcoholic beverages, which it is doing through its Red Tree Beverages subsidiary. While Coca-Cola has experimented with alcoholic beverages in Japan since 2018, it started its larger push into alcoholic beverages a few years ago.

First, it introduced a hard version of its Topo Chico Seltzer in 2021, and then followed that up the next year when it partnered with Jack Daniels maker 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 lineup. It has partnered with Pernod Ricard to create a canned Absolut Vodka and Sprite cocktail that it has introduced to a number of European countries. In the first half of this year, it also introduced Minute Maid Spiked in the U.S. The wine-flavored cocktails will come in 1.5 liter bottles and be available in lime margarita, strawberry daiquiri, and pina colada flavors.

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

Coca-Cola’s push into pre-mixed alcoholic cocktails makes a lot of sense. Many of its beverages mixed with alcohol are already bar favorites, so this is a natural extension for the company. In addition, pre-mixed alcoholic cocktails are one of the fastest-growing of all beverage categories. According to the Distilled Spirits Council of the U.S., the category grew nearly 27% in the U.S. and was the fifth-highest-selling spirit by revenue with $2.8 billion in sales in 2023.

Image source: Getty Images. 

Is Coca-Cola stock a buy?

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

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

KO PE Ratio (Forward 1y) data by YCharts

Given its brand power and the defensive nature of the business, Coca-Cola stock generally trades at a healthy valuation multiple. Its current forward price-to-earnings (P/E) ratio is under 24, which is in line with where the stock has often traded in the past several years.

While not in the bargain bin, Coca-Cola is a solid growth compounder, and if alcohol sales can help spike its sales in the years ahead, it appears to be an attractive option for investors at current levels.

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