The Coca-Cola Company (KO) is a longtime holding in the Berkshire Hathaway (BRK.A) (BRK.B) equity portfolio, with legendary value investor Warren Buffett first scooping up shares of the beverage giant back in the late 1980s. While Buffett's enviable entry price on the position is just about impossible to replicate in 2024, the company still has nearly unmatched brand power with consumers and a generous dividend policy, which means investors looking to steal a page from his value-investing playbook can still consider buying KO stock whenever it goes on sale.
With the shares down about 15% from their latest highs, here's a closer look at this classic Buffett stock.
About KO Stock
One of the most recognizable brands globally, Coca-Cola (KO) is a beverage company that produces, distributes, and markets non-alcoholic beverages under labels including Coca-Cola, Diet Coke, Fanta, Sprite, Schweppes, and more. Its offerings include sparkling and flat water, concentrates and syrups, fountain syrups, juice, tea and coffee, energy drinks, and more.
Valued at $269 billion by market cap, the Atlanta-headquartered company is the No. 4 holding in Berkshire's equity portfolio, accounting for 8.5% of the conglomerate's holdings.
After soaring to record highs of $73.53 in September, KO has pulled back sharply. The stock is now down 15.3% from that peak, and is clinging to a year-to-date gain of just 5.7% - underperforming the broader S&P 500 Index ($SPX), which has rallied 23.6% in 2024.
As a result, the shares are no longer technically overbought, with the 14-day Relative Strength Index (RSI) around 53.21.
At current levels, KO stock yields 3.10%, based on its quarterly dividend payment of $0.49. The company has consistently increased its dividend payments for over 60 years, establishing Coke as a Dividend King.
Coca-Cola Beats on Q3 Earnings
Coca-Cola reported its third-quarter results on Oct. 23, which beat analysts' estimates. Profit for the quarter came to $2.85 billion, or $0.77 per share on an adjusted basis, compared to the consensus estimate of $0.74 per share. Revenue fell 1% year over year to $11.85 billion, outpacing the average estimate of $11.61 billion from analysts.
Organic revenue rose 9% for the period, surpassing the 6.3% consensus, even as global unit case volume fell 1% for the period. Lighter volume was offset by more favorable pricing, with a 10% increase in price/mix.
“Approximately 4 points were driven by pricing from markets experiencing intense inflation, with the remainder driven by pricing actions in the marketplace and favorable mix,” according to the company.
Management seemed to acknowledge the limitations of its pricing-dependent revenue growth in the current environment on the conference call. “There's clearly part of the consumer landscape where there's pressure on disposable income,” said Coca-Cola CEO and Chairman James Quincey.
Adjusted operating margin improved slightly to 30.7% in Q3, up from last year’s 29.7%. Cash flow from operations reached $2.9 billion, while adjusted free cash flow was $1.6 billion, or $7.6 billion excluding the impact of an IRS tax litigation payment.
KO management also updated their full-year guidance to call for 10% organic sales growth and non-GAAP EPS growth of 14% to 15%, with free cash flow totaling $9.2 billion.
Analysts Stick With a ‘Strong Buy’ on KO
The 21 analysts in coverage have a consensus “Strong Buy” rating on KO stock, and a mean price target of $74.52 - reflecting a potential upside of 19.3%.
KO is currently valued at 21.93x forward adjusted earnings, which marks a discount to the stock's historical average multiple of 24.28x. For investors eyeing the pullback in this Buffett stock, now may be a good time to consider adding shares of Coke on the dip.
