Coca-Cola’s (KO) Big Bet on Milk Is Paying Off

Beverage maker Coca-Cola (KO) is betting big on Fairlife, its premium milk brand, to drive growth and offset its declining soda sales, and so far, it is paying off. Indeed, Fairlife has become Coke’s fastest-growing U.S. brand, with retail sales topping $1 billion in 2022 from $90 million in 2015. The brand’s success can be attributed to its unique filtering process, which increases the amount of protein in the drink while reducing sugar and lactose. This has allowed it to gain traction with consumers looking for high-protein options despite its premium price.

As a result, the company is expanding its distribution and investing in new production facilities that include a $650 million plant in upstate New York. Coca-Cola’s focus on Fairlife is part of its broader strategy to diversify beyond soda. In fact, the company has made significant investments in coffee, sports drinks, and other beverages. Nevertheless, Fairlife has stood out from the rest and has even become the firm’s largest acquisition ever.

In fact, when Coca-Cola bought a majority stake in Fairlife from Select Milk Producers for $1 billion in 2020, it agreed to make additional payments based on the brand’s performance. Initially, these payments were expected to total around $320 million. However, the latest estimates suggest the total payout will be around $6 billion – a 275% increase over the past two years. This brings the total cost of acquiring Fairlife to approximately $7.4 billion over five years.

Is KO Stock a Good Buy?

Turning to Wall Street, analysts have a Strong Buy consensus rating on KO stock based on 12 Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 10% rally in its share price over the past year, the average KO price target of $71.46 per share implies 11.6% upside potential.

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