Beverage industry behemoth The Coca-Cola Company (KO) defied macroeconomic headwinds and delivered impressive third-quarter results. The company’s top line of $11.1 billion beat analysts’ estimate by 5.7%. Its EPS of $0.69 surpassed the consensus estimate by 8.3%.
The company expects to keep this momentum going and has raised its growth expectations. For the fiscal year 2022, KO expects to deliver an organic (non-GAAP) revenue growth of 14% to 15%. It also expects to deliver comparable EPS (non-GAAP) growth of 6% to 7%.
The stock is down marginally year-to-date but has gained 4.8% over the past year. It has also gained 5% over the past month to close its last trading session at $58.81.
Here are the factors that might influence KO’s performance in the near term:
Solid Recent Financials
For the fiscal third quarter ended September 30, KO’s non-GAAP net operating revenues increased 10% year-over-year to $11.05 billion. Its non-GAAP gross profit rose 6.5% from the prior-year quarter to $6.54 billion. Non-GAAP net income and non-GAAP net income per share improved 6.7% and 6.2% from the prior-year period to $3.01 billion and $0.69, respectively.
Robust Profitability
KO’s trailing-12-month EBIT margin, net income margin, and levered FCF margin of 28.62%, 23.44%, and 22.32% are 219.4%, 397.6%, and 631.8% higher than the respective industry averages of 8.96%, 4.71%, and 3.05%.
Its trailing-12-month ROCE, ROTC, and ROTA of 44.13%, 11.52%, and 10.73% are 278.3%, 86.5%, and 132.8% higher than their respective industry averages of 11.66%, 6.18%, and 4.61%.
Attractive Dividend
On October 20, KO declared a dividend of 44 cents per common share, payable to shareholders on December 15. Its annual dividend of $1.76 yields 2.99% on the current share price.
The company’s dividend payouts have increased at a 3.1% CAGR over the past three years and a 3.6% CAGR over the past five years. KO has a record of 59 years of consecutive dividend growth.
POWR Ratings Reflect Promising Prospects
KO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. KO has a Stability grade of B, in sync with its beta of 0.57.
The stock has a B grade for Sentiment, consistent with favorable analyst estimates. Analysts expect its revenue and EPS for the current year to increase 10.4% and 6.9% year-over-year to $42.67 billion and $2.48, respectively.
KO also has a Quality grade of B, justified by its robust profit margins.
In the 33-stock Beverages industry, it is ranked #19. The industry is rated A.
Click here to see the additional POWR Ratings for KO (Growth, Value, and Momentum).
View all the top stocks in the Beverages industry here.
Bottom Line
KO’s recent earnings and full-year guidance increase look promising. Moreover, the company has a stellar record of paying stable dividends. Wall Street analysts expect a 12.7% near-term upside in the stock price. Hence, I think KO might be a solid buy now.
How Does The Coca-Cola Company (KO) Stack Up Against Its Peers?
While KO has an overall POWR Rating of B, one might consider looking at its industry peers, Coca-Cola Consolidated, Inc. (COKE) and Coca-Cola FEMSA, S.A.B. de C.V. (KOF), which have an overall A (Strong Buy) rating.
KO shares fell $0.22 (-0.37%) in premarket trading Thursday. Year-to-date, KO has gained 1.54%, versus a -20.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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