One of the world’s largest nonalcoholic beverage companies, the Coca-Cola Company (KO) in Atlanta, Ga., is not devoid of its share of controversies to which its stock reacts. For example, the stock dipped on June 16 after professional soccer player Cristiano Ronaldo removed two of KO’s soda bottles at a Euro 2020 press conference. The company’s CFO, John Murphy, said the incident has not led to any direct sales impact.

The stock’s price has rallied 4.2% over the past month and 12.8% over the past six months to close yesterday’s trading session at $56.73. Amid a resurgence of COVID-19 cases in many parts of the world, KO’s CFO said last month that the company would rely on its pandemic-tested strategy of focusing on bigger brands and doubling down on its supply chain to combat a potential impact from the spread of the COVID-19 Delta variant. Furthermore, the dividend aristocrat is expected to pay a $0.42 quarterly dividend on October 1, 2021. So, KO’s near-term prospects look  promising.

Here’s what we think could influence KO’s performance in the near term:

Positive Developments

KO’s first-ever Non-Fungible Token (NFT) collectibles secured a $575,883.61 winning bid in an online auction recently, the proceeds from which are  to go to Special Olympics International. In addition, its Honest Tea brand launched the Honest Yerba Mate in April 2021, continuing its efforts in marketing organic beverages.

The company announced a new partnership with The Ocean Cleanup in June 2021 to address plastic pollution and eliminate plastic waste entering the world’s oceans. Furthermore,  in February 2021, KO introduced a new 13.2oz bottle in the United States, made from 100% recycled plastic material (rPET).

Revenue Growth Across All Major Segments

KO’s total revenues increased 41.7% year-over-year to $10.13 billion for its  fiscal second quarter, ended July 2, 2021, with non-GAAP organic revenue up 37% year-over-year. The company’s revenue from its  North America segment came in at $3.38 billion, up 28% year-over-year, while its  EMEA segment’s revenue increased 67% year-over-year to $2.02 billion. Also, its revenue from  Bottling Investments came in at $1.74 billion, representing a 38% year-over-year rise.

The company’s unit case volume for the quarter grew 18% year-over-year. KO’s price/mix increased 11% year-over-year, driven primarily by favorable channel and package mixes due to  the impact of the  pandemic last year. Its net income increased 48.5% year-over-year to $2.64 billion in the quarter, while its EPS was  $0.61, up 48.8% year-over-year.

Favorable Analysts Estimates

Analysts expect KO’s revenue to increase 12.8% for the quarter ending September 30, 2021, and 11.8% in its fiscal year 2021. The company’s EPS is expected to increase 11.8% in the current year and 8.3% next year. Also,  its EPS is expected to grow at a 9.1% rate per annum over the next five years.

KO has a 1.61 average broker rating. And out of 28 analysts that rated the stock, four rated it Strong Buy, and 14 rated it buy. Also, it is expected to hit $61.93 in the near term, which indicates a potential 9.2% upside.

POWR Ratings Show Promise

KO has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct 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 Growth and Sentiment, consistent with analysts’ expectations that its revenue and EPS will increase.

The stock has a B grade for Quality, which is in sync with its trailing-12-month gross profit margin and EBITDA margin of 60.61% and 35.70%, respectively, which are higher than the 35.18% and 14.35% industry averages. KO has a B grade for Stability also, which is consistent with its 0.63 beta.

We have also rated KO for Momentum and Value in addition to the POWR Ratings grades we have just highlighted. Get all the KO ratings here.

KO is ranked #7 of 37 stocks in the B-rated Beverages industry.

If one is  looking for other top-rated stocks in the same industry with an Overall POWR Rating of Strong Buy or Buy, one  can access them here.

Bottom Line

Despite the resurgence of COVID-19 cases in several parts of the world, KO’s shares have rallied over the past few months as the company’s sales grew, relying on the ongoing economic recovery in some parts of the world. Furthermore,  KO  is expected to continue gaining by leveraging its dominant market position and offering more than 500 beverage brands in more than 200 countries and territories. So, we think it’s wise to bet on the stock now.

KO shares fell $0.02 (-0.04%) in premarket trading Thursday. Year-to-date, KO has gained 5.11%, versus a 19.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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