Since the beginning of the year, volatility has been rife in the stock market due to various macroeconomic and geopolitical concerns. The Dow Jones Industrial Average (DJIA) has declined 11.4% year-to-date to close the last trading session at 32,197.59, while the S&P 500 and the Nasdaq Composite have fallen 15.5% and 23% year-to-date to close the last trading session at 4,023.61 and 12,032.42, respectively.
Despite this volatility, shares of The Coca-Cola Company (KO) have remained resilient and gained 6.4% year-to-date to close the last trading session at $63.01. The defensive nature of the business helped the stock stay afloat this year.
KO is the third largest investment of famous investor Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B). The company has raised its dividends annually for the last 59 years. KO’s four-year average dividend yield is 3.12%, and its forward annual dividend of $1.76 translates to a 2.78% yield. Its dividend has grown at a 2.9% CAGR over the past three years.
The company managed to increase its sales for the second quarter ended July 1, 2022, by hiking the prices of its products. KO’s CFO John Murphy said, “We continue to see resilience and a lot of demand not just in the U.S. but across the world.”
KO’s organic sales in North America grew by 13%, while its unit case volume rose 2% in the second quarter. For fiscal 2022, the company expects 12% to 13% organic revenue growth.
Here’s what could influence KO’s performance in the upcoming months:
Robust Financials
KO’s net operating revenues increased 11.8% year-over-year to $11.32 billion for the second quarter ended July 1, 2022. The company’s gross profit increased 2.4% year-over-year to $6.49 billion. Also, its non-GAAP net income increased 4.4% year-over-year to $3.06 billion. In addition, its non-GAAP EPS came in at $0.70, representing an increase of 2.9% year-over-year.
Favorable Analyst Estimates
Analysts expect KO’s EPS for fiscal 2022 and 2023 to increase 6% and 6.3% year-over-year to $2.46 and $2.62, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 9.1% and 4% year-over-year to $42.19 billion and $43.90 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters.
Strong Profitability
In terms of trailing-12-month gross profit margin, KO’s 58.89% is 78.2% higher than the 33.05% industry average. Likewise, its 3.41% trailing-12-month Capex/S is 8.2% higher than the industry average of 3.15%.
Furthermore, the stock’s trailing-12-month levered FCF margin and EBITDA margin came in at 17.17% and 30.68%, compared to the industry averages of 3.40% and 12.60%, respectively.
Stretched Valuation
In terms of forward EV/S, KO’s 7.26x is 289.7% higher than the 1.86x industry average. Likewise, its 22.58x forward EV/EBITDA is 88.6% higher than the 11.97x industry average. And the stock’s 9.83x forward P/B is 239% higher than the 2.90x industry average.
POWR Ratings Show Promise
KO has an overall rating of B, equating to a Buy in our POWR Ratings 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 B grade for Quality, consistent with its higher-than-industry profitability.
It has a B grade for Stability, in sync with its 0.56 beta.
KO is ranked #18 out of 35 stocks in the A-rated Beverages industry. Click here to access KO’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
KO has managed to beat the market volatility and is currently trading above its 50-day and 200-day moving average of $62.46 and $60.36, respectively, indicating an uptrend. Given its robust financials, favorable analyst estimates, and higher-than-industry profitability, it could be wise to buy the stock now.
How Does The Coca-Cola Company (KO) Stack Up Against its Peers?
KO has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Beverages stocks with an A (Strong Buy) or B (Buy) rating: Embotelladora Andina S.A. (AKO.B), Compañía Cervecerías Unidas S.A. (CCU), and Primo Water Corporation (PRMW).
KO shares were trading at $62.96 per share on Thursday morning, down $0.05 (-0.08%). Year-to-date, KO has gained 7.92%, versus a -15.36% 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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