Coca-Cola Co. outlook strong after big acquisition

Question: How will changes at Coca-Cola Co. affect my stock?

Answer: Coca-Cola has been ranked the most valuable brand worldwide for the last 11 years by Interbrand, the global branding firm.

The world’s largest maker of soft drinks, the company sells more than 3,300 products in more than 200 countries. Almost three-fourths of its revenue is generated outside the U.S. For example, the company recently predicted its sales in Peru would hit $1 billion within five years.

Last year Coke earned $6.8 billion on sales of $30.9 billion.

But the popularity of carbonated drinks has been in decline, and negative publicity about the health risks of beverages high in sugar could further depress their sales. In addition, Coke faces the risk of increases in raw-material prices, currency fluctuations and political disturbances overseas.

The company also produces noncarbonated drinks, including Dasani, Powerade, Odwalla and Minute Maid. That segment is expected to account for much of the company’s growth.

Coke this month completed an acquisition of the North American operations of its bottling and distribution affiliate, Coca-Cola Enterprises Co., in a deal valued at $12.3 billion, including the assumption of $8.8 billion in debt.

The acquisition gave Coke direct control over more than 90% of its North American sales volume and a closer relationship with retailers. The transaction left Coca-Cola Enterprises with operations in Western Europe, which simultaneously grew as the distributor bought Coca-Cola Co.’s bottling operations in Norway and Sweden for $822 million.

Despite the billions of dollars of debt taken on in the deal, Coca-Cola Co. remains in excellent financial shape. Its stock is up 7.6% this year after climbing 26% last year.

Wall Street analysts have given Coca-Cola shares five “strong buy” ratings, eight “buys” and two “holds.”

Health sciences fund manager has medical degree

Question: Is this a smart time to put money in T. Rowe Price Health Sciences Fund?

Answer: This $2.3-billion fund can claim to have a doctor in the house: portfolio manager Kris Jenner, who has a medical degree from Johns Hopkins University.

Jenner looks for innovative small and midsize firms that have superior growth prospects. But the fund also owns some large companies such as Merck & Co. and Amgen Inc.

“This is one of our picks in the healthcare category, and it has done surprisingly well in a topsy-turvy market this year,” said Christopher Davis, fund analyst with Morningstar Inc. “Jenner has really done a good job of stock picking, though it can still be a volatile fund because it does focus on some smaller stock names.”

Although the portfolio includes all major healthcare subsectors, its focus is narrow enough that it should be at most a niche holding for an individual investor.

The fund has returned 19% in the last year, with an annualized three-year total return of 0.7%. Both results rank in the upper one-fifth of health funds.

The fund requires a minimum initial investment of $2,500, has an annual expense ratio of 0.87% and imposes no sales charge.

Andrew Leckey answers questions only through the column. E-mail him at [email protected].