Beverage giant
The Coca-Cola Company
(
KO
) and dairy cooperative Select Milk Producers, Inc recently
announced their decision to purchase equity stakes in Fair Oaks
Farms Brands, LLC, a company that produces and markets value
added nutrition products, including Core Power, a popular high
protein milk shake.
As it is, Core Power is distributed by Coca-Cola Refreshments (a
Coca-Cola subsidiary) and is well accepted among consumers. The
acquisition of stakes in Fair Oaks will bring together the
technological expertise, sustainability and innovation of Select
and Coca Cola's brand building and distribution capabilities.
Together, the companies intend to create a new portfolio of
healthy beverages with high growth potential.
A peer of
Pepsico, Inc.
(
PEP
), The Coca-Cola Company is still largely dependent on its
carbonated beverages. However, with increasing consumer health
awareness, Coca-Cola is slowly expanding the portfolio of
non-carbonated drinks. Coca-Cola commands a leading position in
the juices or still beverages category, with its flagship brands
Minute Maid, Simply and POWERade. With the recent acquisition,
the company will add nutritious dairy products to its portfolio,
thus increasing the health quotient of its portfolio.
On the other hand, Select Milk Producers, Inc., which operates in
Texas, New Mexico and the Midwest, will be able to benefit from
the wide distribution network of the Coca-Cola Company.
We are encouraged by The Coca-Cola Company's global reach, strong
brand power, expanding presence outside the U.S. and its solid
cash position. Moreover, the company's strategy of growing
through acquisitions and its productivity initiatives are
expected to result in significant cost savings and improved
productivity in the near future. However, soft economic
conditions and a tough currency environment ahead concern us.
Currently, we have a Neutral recommendation on The Coca-Cola
Company over the long term. The Coca-Cola Company carries a Zacks
#3 Rank in the near term (Hold rating).
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