Investors love The Coca-Cola Company (KO) stock, as it is one of the few stocks that rose during Friday's bloodbath. Moreover, Coke delivered strong Q3 growth and high FCF margins. However, is KO really undervalued?
KO rose 1.4% on Oct. 30 to $94.12, and it's up from $92.70 on Oct. 26 (before the pre-market earnings release on Oct. 27). The chart below shows that KO is near 6-month highs.
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KO stock - last 6 months - Barchart - Oct. 30, 2026 So, can KO stock keep moving higher? After all, analysts' price targets are only slightly higher.
Yahoo! Finance shows that the average price target (PT) from 25 analysts is only $97.54. Similarly, Barchart's mean survey PT is just $97.64. These PTs are only 3.8% above Friday's close.
And that is despite the company's strong growth.
Coca-Cola's Strong Growth
For example, The Coca-Cola Company reported that Q3 revenue rose 7.43% YoY and its net income rose 8.47%. Moreover, earnings per share (EPS) was up 8.27%, although Coca-Cola said its “comparable” EPS rose 11%.
Free cash flow (FCF) was strong at $4.549 billion in Q3, representing 34% of revenue. That was about the same as last year, although the FCF margin was higher at 36.64% last year.
However, over the past year, its FCF rose 156% to $14.282 billion, according to Stock Analysis. That represented 28% of sales, compared to 11.62% last year.
In other words, the company has been squeezing much more cash out of its operations.
The problem is that the market has already discounted most of this good news about higher FCF margins.
Forecasting FCF and Price Targets
Next year, analysts have forecast slightly lower revenue (i.e., $48.86 billion, vs. $50.48 billion). On the conference call, management indicated they expected $13 billion in FCF in 2026.
So, the overall FCF margin in 2026 will be about 26% (i.e., $13b/$50.48 = 0.2575).
If Coca-Cola maintains a 28% FCF margin in 2027 (as it has done in the last 12 months - see above), its FCF would be $13.68 billion (i.e., 0.28 x $48.86). That is only 5.2% higher than in 2026:
$13.68b FCF 2027 / $13 est. 2026 = 1.052
So, that might imply 5% upside in the stock. Not exactly.
For example, historically KO has traded at about a 3.6% FCF yield (see Seeking Alpha's 5-year average 27.64x forward P/CF multiple: 1/27.64 = 0.03617).
So, here is how the market might value KO stock if it makes $13.68 billion in FCF:
$13.68b / 0.036 = $380 billion fair market value (FMV)
That is $25 billion below its market cap of $405.45 billion, according to Yahoo! Finance (i.e., 6.3% lower). That implies a price target (PT) of $100.49.
However, just to be generous, let's assume the market gives KO an even 30x FCF multiple (i.e., a 3.33% FCF yield):
$13.68b FCF x 30 = $410.4 billion FMV
That's only $5 billion above Friday's close, or +1.23% higher: PT = $95.28
This shows why analysts' price targets are only slightly higher at $97.54, as I mentioned earlier.
Summary and Conclusion
This shows much of the good news in Coca-Cola's stock price is already in KO's price. If Coca-Cola delivers substantially more than $13 billion in FCF this year and next year, there could be more upside.
Otherwise, KO stock looks fully valued. However, that doesn't mean it won't move higher. Investors piling out of tech stocks may be willing to bid up the price.
Moreover, normally I would suggest shorting out-of-the-money (OTM) puts. That way, an investor can set a lower buy-in and collect income upfront.
But, it makes sense for conservative investors to wait for a pullback. If the company declares a dividend increase next quarter, that could become a catalyst to add more shares.
On the date of publication, Mark R. Hake, CFA did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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