By Andy Serwer
One of the more surprising stock stories of 2026 has to be Coca-Cola's year-to-date outpacing of the S&P 500 index and its ancient foe, PepsiCo -- with the latter point being as significant as the former to well-versed investors.
Of course, this is the shortest of short time periods, the very opposite of what Coke's biggest champion, Warren Buffett, the recently retired CEO of Berkshire Hathaway, would consider prudent. In fact, over the past nine years -- basically the tenure of Coke's former CEO James Quincey, who stepped down on March 31 -- Coke's stock performance has been decidedly meh versus the market, though again, superior to Pepsi's, for those keeping score at home.
Why, then, does Berkshire continue to hold 400 million shares of Coke, a stake that Buffett built in the late 1980s and now worth some $31 billion, accounting for 9.3% of that company and 9.6% of Berkshire's investment portfolio? (Note that new Berkshire CEO Greg Abel has called Coke one of Berkshire's "core four" investments, along with Apple, Moody's, and American Express.)
A look at the current state of Coke -- "by America's side for 140 years of its 250 years" -- provides some compelling clues.
First, let's acknowledge the brisk headwinds Coke faces. Those include GLP-1 drugs like Ozempic and Mounjaro, which might lessen consumers' cravings for sweet drinks; inflation, which shrinks margins; taxes on sugary drinks in some countries and jurisdictions, which could reduce demand; wars around the world; and an unproven CEO in Henrique Braun.
Feel the breeze?
Those negatives, though, make Coke's recent little pop that much more impressive, with the company recently reporting adjusted earnings of 86 cents per share in the first quarter, above the consensus of 81 cents per share. Coke Zero Sugar continues to be the star attraction, with sales climbing 13%.
"Pretty darn impressive," Goldman Sachs analyst Bonnie Herzog tells Barron's. "And it's not just this year; I would say also last year. They continue to deliver above their peers."
Over at BofA Securities, analyst Peter Galbo rates Coke as a top pick. "It's probably the only company across the 40-odd we cover that will hit its growth algorithm this year; top line, operating profit, growth rate, and earnings-per-share growth," he tells Barron's.
How is Coke managing that? Galbo notes that Coke has outsize exposure in markets like Latin America, Asia-Pacific, and India, which has served Coke well, as domestic growth has been sluggish. And he points out that Coke is a pure-play, all-weather beverage company, meaning that it has soda (Coke and Sprite), water (Dasani), protein drinks (Fairlife), teas (Gold Peak), coffee (Costa), juice (Minute Maid), and sports drinks (Powerade).
"Beverages, relative to food, where we're all counting calories, is a much more resilient category," Galbo says. "You drink beverages because of hydration, for caffeine, or post-workout or pre-workout."
The real key, though, is Coke's business model. The company is an asset-light, global moneymaking machine, expert in selling concentrates and syrup mixtures to its bottling partners, marketing, and optimizing its products and pricing. Coke is hardly infallible (anyone remember New Coke?), but it hits more often than it misses.
And, arguably, Coke is getting better, institutionalizing a growth strategy flywheel, especially with what it calls revenue growth management, which means having the right brand at the right price in the right package for consumers. To put numbers on that, Coke has 200 brands (32 of which have over $1 billion in annual sales), which are consumed in 2.2 billion drinks per day in some 200 countries around the world. No wonder Coke made Morgan Stanley's Global Best Business Models list.
Yes, inflation is a bad guy for Coke's business, but the company is expert in modeling out price changes in inputs like sugar, corn syrup, aluminum, and plastic, and in pricing to consumers.
A critical metric that Galbo points to is unit case volume, or UCV, which for Coke is shipments of concentrate, a "true underlying demand driver." In the first quarter, Coke's UCV was up 3%, while the Street was looking for 0% to 1% growth, he says. And Coke continues to reduce its bottling operations, which has driven operating margins from the low-20% range 10 years ago to the low-30% range today.
A quick word about new CEO Braun, a Brazilian-American with a masters from Michigan State University who has been at the company for 30 years. "Henrique has worked closely with James [Quincey] in Latin America and throughout the organization on revenue growth management," says Goldman's Herzog. "I don't foresee dramatic changes. It's almost like taking that baton and continuing to run the race. I think he'll be even more global."
"Henrique is well thought of by Coke's most important constituents -- the bottlers," says Galbo. "That relationship really flourished under James. The continuity factor of having somebody that the bottlers truly know and respect is incredibly important to sustaining the success of Coke."
Coke's board has some intriguing dynamics. Recall that Buffett served as a director for 17 years, from 1989 to 2006. (A low point was when he and others blocked Coke from buying Quaker Oats and its valuable Gatorade business, which Pepsi snapped up.)
Today, there are two Buffett disciples on Coke's board: Tom Gayner, CEO of mini-Berkshire Markel Group, and investor Chris Davis (who's also on Berkshire's board). Herbert Allen III, president of boutique investment bank Allen & Co., has had a board seat since 2021, taking over from his father. who joined the board in 1982 after Coke bought Columbia Pictures. The board recently beefed up its Silicon Valley ties with the addition of PayPal mafioso Max Levchin, former Meta Platforms and Microsoft executive Carolyn Everson, and Bela Bajaria, chief content officer of Netflix.
Then there's that Coke versus Pepsi rivalry. In recent years, Coke has won this race, even as Pepsi, which has a broader portfolio -- including Frito-Lay in the salty snacks category -- has leaned into healthier food and drinks. Bigger than Coke, with $94 billion in sales last year versus Coke's $48 billion, Pepsi is nonetheless worth $211 billion to Coke's $336 billion. Why? For one thing, Coke had $13.1 billion in net income last year, while Pepsi did $8.2 billion.
The rivalry extends to our two analysts. Herzog prefers Pepsi over Coke. Galbo is Coke over Pepsi. "The reason comes down to valuation and the risk/reward," Herzog says. "I think a lot about Coke is broadly priced in. Pepsi has underperformed and is in the middle of a turnaround." She notes that Coke's forward 12-month price/earnings ratio of 23.8 -- versus 17.9 for Pepsi -- is well above its historical average premium.
As for Galbo, he says, "The value driver of Pepsi is not the beverage business; it's the food business, Frito-Lay. The salty-snacks category has had a lot more significant headwinds [that word again] over the past several years." Galbo points to GLP-1 phobia, but more importantly, he notes that the prices for salty snacks climbed some 30% from 2021 to 2024, hurting demand.
Buffett made his choice some 40 years ago, reportedly swapping out a stake in Pepsi to buy Coke. Still, you wonder about Coke's continuing appeal to Abel. Sure, with Coke's 2.71% yield, Berkshire takes home $848 million a year in dividends on its stake, but there are plenty of stocks out there sporting more-generous payouts.
I'm guessing that Buffett and Abel would point to safety of the yield, the continuity of Coke's strategy, and the continuously improving execution. And maybe some of that mirrors Berkshire.
Write to Andy Serwer at andy.serwer@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 07, 2026 01:30 ET (05:30 GMT)
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