The Coca-Cola Company's (KO) product lineup includes sparkling soft drinks, water, enhanced water, sports drinks, juice, dairy, plant-based beverages, tea and coffee, and energy drinks. The company’s shares have gained 13.5% over the past year and 7.5% year-to-date to close its last trading session at $63.67.
KO reported strong second-quarter sales and increased its annual revenue forecast as people continue to visit theme parks, movie theaters, and travel destinations despite price increases.
Its organic revenue, which excludes currency fluctuations and acquisitions or divestitures, increased by 16% in the quarter ended July 1, as the company's pricing and packaging mix increased by 12%. The global case volume of the company increased by 8%. The soda giant expects organic revenue to increase by 12% to 13% for the full year. It had previously predicted organic revenue growth of 7% to 8%.
In addition, in June, KO and Brown-Forman Corporation entered a global partnership to launch the iconic Jack & Coke cocktail as a branded, ready-to-drink (RTD) pre-mixed cocktail option. "This partnership brings together two classic American icons to provide consumers with a taste experience they love in a consistent, convenient, and portable manner," said Lawson Whiting, CEO and President of Brown-Forman Corporation.
Here's what could shape KO's performance in the near term:
Strong Profitability
KO's trailing-12-month gross profit margin of 58.9% is 81% higher than the industry average of 32.5%. Also, its ROC, net income margin, and ROA are 77.5%, 326.4%, and 117.5% higher than their respective industry averages. Furthermore, its EBITDA margin of 32% is 163.8% higher than the industry average of 12.1%.
Impressive Growth Prospects
Street expects KO's revenues and EPS to rise 9% and 6.5% year-over-year to $42.13 billion and $2.47, respectively, in fiscal 2022. In addition, KO's EPS is expected to rise 5.5% in the current quarter. Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in all of the trailing four quarters.
Consensus Rating and Price Target Indicate Potential Upside
Of the 10 Wall Street analysts that rated KO, seven rated it Buy. The 12-month median price target of $69.50 indicates a 9.2% potential upside. The price targets range from a low of $65.00 to a high of $74.00.
POWR Ratings Reflect Solid Prospects
KO has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. KO has a B for Stability and Quality. The stock beta of 0.56 is consistent with the Stability grade. In addition, its robust profitability is in sync with the Quality grade.
Of the 34 stocks in the A-rated Beverages industry, KO is ranked #20.
Beyond what I stated above, we have graded KO for Value, Growth, Sentiment, and Momentum. Get all KO ratings here.
Bottom Line
KO produced strong quarterly results in the latest earnings release despite rising costs. Furthermore, the company is expected to gain significantly based on its solid growth attributes. Given the company's strong financials, favorable consensus ratings, and price targets, we believe it may be a good time to buy the stock.
How Does The Coca-Cola Company (KO) Stack Up Against its Peers?
KO has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the same industry with A (Strong Buy) ratings: Coca-Cola Consolidated Inc. (COKE), Embotelladora Andina S.A. (AKO.B), and Suntory Beverage & Food Ltd. (STBFY).
KO shares rose $0.02 (+0.03%) in premarket trading Friday. Year-to-date, KO has gained 9.14%, versus a -12.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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