October 7, 2023 $53.14
Maverick Guidance:
- Coca-Cola (KO), a Warren Buffett favorite with a high return on equity and 61 consecutive years of dividend increases, is part of the CAUTIOUS GROWTH Portfolio.
- World-leading recognized brand and global distribution drives a competitive edge, consistent earnings, and cash flow under James Quincey’s leadership.
- Presently is a technical Strong Buy
Market Guidance:
- Technical Analysis: Investing.com = Strong Sell, TipRanks = Sell.
- Point & Figure Pattern: Double Bottom Breakdown on 06-Sept-2023
- Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Strong Buy.
- 11 Wall Street analysts have offered 12-month price targets for Goldman Sachs in the last 3 months. There are 9 Buy, 2 Hold, and 0 Sell.
- The average price target is $70.91, with a one-year high forecast of $76.00 and a low forecast of $63.00.
- Dividend Yield: $0.46 per share paid quarterly to yield 3.47%.
Value Line Guidance:
- Company Financial Strength Rating: A++
- Share Price Safety, Market Timing, and Technical Rank: 1=best, 5=worst
- Share Price Safety: 1/5
- Market Timing: 3/5
- Technical Rank: 3/5.
- Stock’s Price Stability: 100/100
- Price Growth Persistence: 45/100
- Earnings Predictability: 100/100
CRM 10-Year Average Annual Return: 6.94% to October 6, 2023 (Dow 30 bottom quartile).
The 3-to-5-year Value Line Annual Outlook:
- Revenue Growth Potential: +6.5%
- Cash Flow Growth Potential: +7.5%
- Earnings Growth Potential: +7.5%
- Dividend Growth Potential: +6.0%
Revenue, Cash Flow, Earnings Quarterly Operations Review of Previous Quarters:
April-June 2023 Quarter
In Q2 2023, The Coca-Cola Company excelled with an +11% YoY increase in earnings per share, reaching $0.78, surpassing estimates. The key contributors were strong revenue growth driven by price increases and a favorable product mix. While unit case volume remained stable, North America achieved a remarkable +23% rise in comparable operating income, offsetting higher expenses. However, adverse foreign exchange rates impacted results, and Asia-Pacific operations declined by -4% post-adjustment.
Looking ahead to Q3, challenges may arise. The effect of prior price increases on revenue growth is expected to moderate, and cost-conscious consumers may opt for lower-priced brands in select categories. Currency effects will continue to affect international operations, leading to a revised estimate of a 4%-5% reduction in full-year earnings, up from the earlier guidance of a reduction of 3%-4%.
January-March 2023 Quarter
In Q1 2023, The Coca-Cola Company maintained its strong performance, with earnings rising +6% YoY to $0.68 per share, surpassing estimates. Foreign currency headwinds did not hinder overseas operations, which recorded nearly a +5% increase in revenue. This growth was driven by 2022 price increases and a solid +3% growth in unit case volumes. A wider operating margin boosted profits, offsetting increased expenses. Management retained full-year guidance but with an anticipated 4%-5% earnings increase, slightly lower than the high-single-digit pace seen in 2022. This reflects the lapping of last year’s price increases, leading to a deceleration in organic revenue growth from +12% in Q1 to +7%-8% for the full year. Profit growth acceleration is expected in 2024, with a mid-single-digit revenue increase, driving earnings to approximately $2.85 per share.
October-December 2022 Quarter
Throughout 2022, The Coca-Cola Company achieved substantial revenue growth, with an +11% rise in price/mix and a +5% increase in concentrate sales, offsetting a -7% decline due to currency headwinds. Comparable operating income followed a similar trajectory. However, profit growth paused in the December quarter due to higher interest expenses, lower pension income, and other factors. Modest growth is expected in the current year.
July-September 2022 Quarter
In Q3 2022, The Coca-Cola Company maintained strong revenue growth, with a +10% YoY increase despite an 8% currency translation impact. This was driven by a +12% improvement in price and mix, outpacing a +4% increase in case volumes. The company addressed cost-conscious consumers by introducing smaller, more affordable beverage packs. Earnings of $0.69 per share exceeded estimates, although foreign exchange challenges persisted. The full-year growth outlook was adjusted to +6%-7%, but Q4 2022 is expected to show relatively flat growth due to ongoing foreign exchange headwinds, input cost inflation, and increased marketing efforts. Earnings growth in 2023 is projected at +4%-6%, with moderated revenue growth in the face of global economic headwinds.
Operations and Financial Outlook
In 2023-2024, we expect earnings to increase gradually. Price increases will likely continue driving revenue growth, although the favorable impact may ease as inflation moderates and the company laps some of last year’s hikes. Concentrate sales are expected to remain on the upswing, aided by the easing of COVID-related restrictions in China. Nonetheless, investors should monitor global economic conditions for signs of reduced demand.
Annual Financial Performance
While the company has shown steady performance, its stock has been relatively flat, reflecting broader market dynamics. The company boasts a high score for Price Stability and offers an above-average dividend yield. The stock price has been selling off recently, reflecting market dynamics. While the stock held up well during market downturns in 2022, it has faced challenges during this year’s broad market rally, driven by big-tech names. Nevertheless, the equity still offers appealing attributes and presents fairly good upside potential over the 12 to 24-month timeframe. There are top scores for Price Stability and Earnings Predictability. It offers an above-average dividend yield and is expected to announce another dividend increase soon. However, its appreciation potential through 2026-2028 appears limited due to its elevated P/E ratio.
Strategic Developments
The Coca-Cola Company is diversifying its portfolio by entering newer categories, such as alcoholic beverages and coffee. The pandemic has impacted these endeavors but demonstrates the company’s commitment to growth.
Conclusion
In conclusion, The Coca-Cola Company has shown resilience and steady performance in recent quarters. Despite headwinds such as currency translation effects and increased operating costs, the company has achieved consistent revenue growth through a combination of price increases and volume gains. The Coca-Cola Company aims to continue its growth trajectory, diversify its portfolio, and adapt to changing consumer preferences.
Coca-Cola (KO) particularly appeals to moderately conservative investors who choose the CAUTIOUS GROWTH Maverick portfolio. While the stock has faced challenges amid market dynamics, it remains an attractive option for conservative investors seeking stability and income through dividends. The company’s commitment to price stability and a strong dividend yield make it an appealing choice for those looking to weather market turbulence. However, investors focusing on long-term capital appreciation in the consumer spending space may want to explore alternative investment options like Nike (NKE).
10-Year Historical Price Chart:
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