The stock market has faced significant headwinds over the past year due to high inflation and the Fed’s aggressive interest rate hikes. Although inflation has shown signs of easing, and the central bank is looking to pause rate hikes, the likelihood of a recession later this year remains due to tighter credit standards and the possibility of the last-hour raising of the debt ceiling.
Blue-chip stock Coca-Cola Consolidated, Inc. (COKE) has been an investor favorite, creating incredible wealth over the past few decades. Amid the uncertain macroeconomic environment, institutional investors have been buying shares of COKE. The stock has gained 38.8% in price over the past six months and 21% over the past year to close the last trading session at $637.
In this piece, I have discussed several reasons why it could be wise to buy the stock now.
Institutional investors bought COKE shares worth $213 million during the first quarter. State Street Corp. boosted its holdings in the company by 2.1% in the current quarter, while AQR Capital Management LLC raised its holding by 50.2%. The company’s institutional ownership stands at 36.33%.
COKE reported a solid financial performance in the first quarter, where its global unit case volume grew by 3%. The company also gained market share in the nonalcoholic ready-to-drink (NARTD) beverages space. The volume of its smartwater brand grew 8% in the first quarter. COKE’s Chairman and CEO James Quincey said, “We are encouraged by our first quarter 2023 results.”
“Our system alignment is stronger than ever, and our networked organization is allowing us to adapt as needed. We continue to invest for the long term, strengthening our capabilities to drive sustainable value for our stakeholders. We have the right portfolio, the right strategy, and the right execution to deliver in the marketplace. We are confident in our ability to deliver on our 2023 objectives,” he added.
For fiscal 2023, COKE expects organic revenue growth between 7% and 8%, while it expects comparable currency-neutral non-GAAP EPS growth between 7% and 9% and comparable non-GAAP EPS growth between 4% and 5%. The company also expects to generate a non-GAAP free cash flow of approximately $9.50 billion.
COKE is expected to pay a dividend of $0.46 to shareholders on July 3, 2023. Its annual dividend of $2 yields 0.31% on the current share price. Its four-year average yield is 0.34%. The company’s dividend payouts have increased at a 14.5% CAGR over the past three years and an 8.5% CAGR over the past five years.
Here’s what could influence COKE’s performance in the upcoming months:
Robust Financials
COKE’s net operating revenues for the first quarter ended March 31, 2023, increased 4.7% year-over-year to $10.98 billion. Its non-GAAP net income rose 5.2% year-over-year to $2.94 billion. The company’s non-GAAP gross profit increased 6.5% over the prior-year quarter to $6.68 billion. Also, its non-GAAP EPS came in at $0.68, representing an increase of 6.3% year-over-year.
Solid Historical Growth
COKE’s EBIT grew at a CAGR of 54.3% over the past three years. Its revenue grew at a CAGR of 9.2% over the past three years. In addition, its net income grew at a CAGR of 140.1% in the same time frame.
Discounted Valuation
In terms of trailing-12-month EV/EBITDA, COKE’s 7.27x is 47.6% lower than the 13.86x industry average. Its 9x trailing-12-month EV/EBIT is 52.5% lower than the 18.93x industry average. Likewise, its 4.84x trailing-12-month Price/Book is 95.2% lower than the 2.48x industry average.
High Profitability
In terms of the trailing-12-month gross profit margin, COKE’s 37.61% is 19.9% higher than the 31.36% industry average. Likewise, its 13.81% trailing-12-month EBITDA margin is 33.5% higher than the industry average of 10.34%. Furthermore, the stock’s 1.76x trailing-12-month asset turnover ratio is 95.2% higher than the industry average of 0.90x.
POWR Ratings Show Promise
COKE has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. COKE has a B grade for Value, consistent with its discounted valuation.
It has a B grade for Growth, in sync with its solid historical growth. Its high profitability justifies its A grade for Quality.
COKE is ranked first out of 37 stocks in the A-rated Beverages industry. Click here to access COKE’s ratings for Momentum, Stability, and Sentiment.
Bottom Line
COKE is trading above its 50-day and 200-day moving averages of $557.15 and $502.63, respectively, indicating an uptrend. The company has a highly recognizable brand name, and its products enjoy strong demand worldwide, making it a stock for all seasons.
Despite the recession concerns, the company has guided strong growth in revenue and earnings for fiscal 2023. Given its robust financials, high profitability, discounted valuation, solid historical growth, and reliable dividends, it could be wise to buy the stock now.
How Does Coca-Cola Consolidated, Inc. (COKE) Stack Up Against Its Peers?
COKE has an overall rating of A, which equates to a Strong Buy. Check out these other stocks within the Beverages industry with A (Strong Buy) or B (Buy) ratings: Embotelladora Andina S.A. (AKO.B), Suntory Beverage & Food Limited (STBFY), and Ambev S.A. (ABEV).
What To Do Next?
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COKE shares were trading at $638.11 per share on Wednesday morning, up $1.11 (+0.17%). Year-to-date, COKE has gained 25.53%, versus a 8.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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