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This paper aimed to determine if A common stock is undervalued, overvalued, or correctly valued using two different methods: two steps growth model and projected P/E multiple method. A (KO) is global leader in the beverage and bottling industry, the A Company offers hundreds of brands, including soft drinks, fruit juices, sports drinks and other beverages.
The terminal value of the stock price in 2017 for A has been calculated and then discounted to the present in the rate of capital cost derived from CAPM (Capital Asset Pricing Model). To gain such goal, at first, we calculate Free Cash Flow to Equity (FCFE) for A in the past five years from 2007 through 2011 (excluding 2009) has been calculated from 10-K forms, which is displayed in Table CF in appendix.
Next step is to calculate Compound Annual Growth Rate (CAGR), by Geometric Mean that is shown in table CF appendix (10.68% for 2007-2011 period). For estimation of FCFE for the next four years ending Dec 2017 the CAGR has been applied in the second part. These steps are illustrated in table CF appendix.
In summery it is shown as below:

The Average Dividend Payout ratio for A in the past five years from 2007 through 2011 (excluding 2009) has been calculated to be 53%. Estimated dividends, according to the average dividend payout ratio, have been computed. In order to determine terminal price once P/E and EPS based on Value Line estimation for A has been used again to determine terminal price, different growth rates have been considered. The computed future value of dividend per share is shown below and was calculated by the projected dividend payout divided by the number of outstanding shares (we kept this figure fixed throughout the table):

In the second part, to calculate an estimate for required rate of return, the risk free rate, Rf, based on the latest 30-yr US Treasury Bond has been considered. Using the Beta (β) calculated from part 2 and Market rate of return, (Rm), the required rate of return, K, is achieved. The potential Betas are shown below.
The reasons that this β has been chosen between all potential betas in part 2, are one, the highlighted value is closer to the Value Line calculated Beta and two, the regression model has a higher R square value, which means the regression model is quite accurate. Rm=7% because of the large market cap of A which is a reported 170 billion dollars in the Value Line summary and mentioned as large cap.
The calculations for the terminal value of the stock price: above table shows the stock price calculation $ 48.20 using Value Line’s projected P/E multiple and projected EPS for 2017. This price includes both the calculated dividend yield as well as terminal value of the common stock. The conclusion is that A common stock is currently undervalued by $ 10.49($ 48.20 - $ 37.71). The value $ 37.71, S0, is the current market price of Coca Cola common stock. We would advise buying the common stock or purchasing call options on Coca Cola common stock at any price below our calculated terminal value of $ 48.20 and the call premium.
The following three tables display calculations using the assumptions of a fixed growth rate after 2017. The fixed terminal growth rates are 2%, 3%, and 4%. As it can be seen, the growth pattern in just a single percentage point change is quite striking, This shows why it is very difficult to be a equity analyst, because your calculations can look as if all stocks are going to make investors millionaires by their tremendous growth over slight growth rate changes. These calculations further display