KO Stock: An Outperformer in a Slowing Industry
The Coca-Cola Co (NYSE:KO) is one of the most recognizable brands in the entire world. Its stock price has grown geometrically for the most part of the last century. The best part is that the momentum in KO stock is continuing to this day. In the past five years, Coca-Cola stock surged 36.6%—not bad for a company with a nearly $200-billion market cap.
Coca-Cola is going to report earnings later this week. Here’s what analysts are expecting.
On average, analysts are expecting Coca-Cola’s revenue to decline by 3.90% year-over-year to $10.28 billion. The bottom line is also expected to deteriorate, by more than eight percent year-over-year to earnings of $0.44 per share. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 17, 2016.)
Stats on The Coca-Cola Co
|Analyst EPS Estimate||$0.44|
|Change from Year-Ago EPS||-8.33%|
|Revenue Estimate||$10.28 billion|
|Change from Year-Ago Revenue||-3.90%|
|Earnings Beats in Past 4 Quarters||4|
Source: Yahoo! Finance
The situation right now is that many segments in the beverage industry are in a declining stage. In pursuit of healthier lifestyles, consumers are shifting away from sugary sodas. Even juice sales have been slipping. (Source: “Longtime Staples of the American Diet Are in Danger of Going Extinct,” Business Insider, December 12, 2015.)
Still, while the overall sentiment for the soda industry is not as optimistic as before, Coca-Cola has been an outperformer in the business. In all four quarters of 2015, the company has beaten Wall Street’s expectations every single time.
The strength of the U.S. dollar presents another challenge for Coke, which operates around the world. Going forward, Coca-Cola sees continued headwinds from foreign exchange fluctuations. The company said in February that it expects currency headwinds to have a five-point impact on net revenues and a 12-point impact on income before taxes for the current quarter. (Source: “Q4 2015 Earnings Call Presentation,” The Coca-Cola Co, February 9, 2016.)
Despite these potential issues, there are still analysts who are bullish on Coca-Cola stock. Last month, RBC Capital Markets reiterated its “Outperform” rating on KO stock and raised the price target to $51.00, representing a more than 10% potential upside. (Source: “RBC: Coca-Cola is Our Favorite Mega-Cap Idea,” CNBC, March 10, 2016.)
RBC analyst Nik Modi said that markets are underestimating the company’s potential volume growth in the next few years. In particular, Coca-Cola’s refranchising efforts could translate to double-digit growth in volume. For that reason, RBC considers KO stock its favorite mega-cap stock.
Modi was also upbeat about Coca-Cola’s recent rebranding efforts. “You could take a farmer out of Egypt and the queen of England and put them in the same room, and the one thing they’ll have in common is that brand, because they’ve both probably consumed it at some point in their lives,” said the analyst. (Source: Ibid.)
The Bottom Line on KO Stock
At the end of the day, keep in mind that over the years, KO stock has done a tremendous job in terms of returning value to shareholders. In fact, it has been a dividend investors’ favorite. Right now, it has a decent 3.04% yield. What’s more impressive is that the company has been paying dividends since 1920 and has increased dividends every single year for the last 54 years.
Coca-Cola is scheduled to report earnings on Wednesday, April 20 before market open. Investors should pay close attention to this outperformer in a slowing-down industry.