Coca-Cola (KO) is the largest nonalcoholic beverage entity in the world, owning and marketing some of the leading carbonated beverage brands, such as Coke, Fanta, and Sprite, as well as non sparkling brands, such as Minute Maid, Georgia Coffee, and Glaceau.
The company’s aggressive cost cutting has helped its bottom line. KO should benefit from exiting Zombie brands to divert resources toward brands with better growth potential. It is also increasing investments to expand digital presence due to changing consumer preferences amid pandemic. KO should see future growth as it moves into healthier beverages.
KO is financially sound to meet short term obligations as its cash and short-term cash investments at the end of the second were up 12.2%. In the same quarter, the company also extended the duration of its outstanding debt by issuing $11.5 billion of long-term maturities, which helps the long term debt profile.
The firm has had stable earnings growth, averaging 26.3% growth over the past three years. Earnings are expected to grow 14.4% next year. KO is fairly valued with a P/E of 23.6, which is less than the industry average and the S&P 500.
In terms of momentum, the stock has been in a positive trend since March, but hasn’t shown the same type of momentum as some of the big-name tech and biotech stocks. KO is rated a “Buy” in our POWR Ratings system, with a grade of “A” for Trade Grade, and a Grade of “B” for Buy & Hold Grade and Peer Grade. The company is also ranked #3 out of 29 stocks in the Beverages industry.
Take a look at the 1-year chart of KO below with the added notations:
Chart of KO provided by TradingView
Over the past year, the $51.50 mark has become a very important level to KO. That price area was a support level before the stock broke lower in March, and it has now become a resistance level. KO is currently sitting just below $51.50, and a break above that price could mean another leg higher for the stock.
Therefore, a trader could enter a long position on a break above that area with a stop placed under it.
Keep a close on KO next week, as the stock reports its latest quarterly results on October 22nd.
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KO shares were unchanged in premarket trading Friday. Year-to-date, KO has declined -7.13%, versus a 9.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Christian Tharp, CMT
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...
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