The Coca-Cola Company (KO) is one the most familiar global brands in the beverages industry. With a market presence in more than 200 countries, KO operates more than 500 brands across the world.
KO has been actively adjusting its business operations to for the “new normal” and continuously upgrading its strategies to accomplish its long-term goals. These efforts should help KO bounce back with a greater force, thereby compensating for its negative year-to-date returns. KO’s sheer market size and brand loyalty, coupled with several other factors have helped the stock earn a “Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates KO:
Trade Grade: A
KO is currently trading higher than its 50-day and 200-day moving averages of $49.00 and $49.49, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 15.7% return over the past three months reflects a solid short-term bullishness.
Despite the pandemic-led disruptions, KO generated $7.20 billion in net revenues and an EPS of $0.41 in the second quarter ended June 2020.
On August 28th, KO announced its plans to establish new operating units, global beverage category leads and new platform services. This is expected to accelerate KO’s growth in tandem with the fast-changing market place. In this regard, KO’s CEO James Quincey said, “The changes in our operating model will shift our marketing to drive more growth and put execution closer to customers and consumers while prioritizing a portfolio of strong brands and a disciplined innovation framework.”
On September 14th, KO announced a debt tender offer to buy back senior notes. This is expected to reduce the company’s debt and thereby interest expenses significantly in the upcoming months. The deal was closed on September 21st. Lower debt not only increases KO’s credibility in the market, but also raises its profitability and earnings growth potential.
Buy & Hold Grade: B
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, KO is well positioned. The stock is currently trading just 15.5% below its 52-week high of $60.13.
The stock has gained 11.9% in the last three years, which can be attributed to its solid income and EPS growth. KO has an impressive long-term performance history, as its net income and EPS grew at CAGR of 30.4% and 30.8%, respectively, over the past three years.
KO follows a consumer-centric strategy of brand building, innovation, and merger and acquisitions to boost its growth in the long term. Its immense market presence in various countries around the world followed and well-built brand loyalty have allowed it to dominate the beverage market over the years.
Peer Grade: B
KO is currently rated #3 out of 29 stocks in the Beverages industry. Other popular stocks in the beverage space are PepsiCo Inc. (PEP), Boston Beer Company, Inc. (SAM), and Monster Beverage Corporation. (MNST).
PEP, MNST, and SAM gained 5.9%, 29.4% and 145.4% year-to-date, respectively, compared to KO’s negative returns over this period. However, KO’s widespread market presence and brand loyalty ensure speedy recovery from the pandemic driven losses.
Industry Rank: C
The Beverages industry is ranked #62 out of the 123 industries in the StockNews.com universe. This industry has been adversely affected by the stay-at home norms throughout the world, as sales from restaurants, shopping malls, movie theatres, and other convenience stores declined significantly. Though the global economy is headed for a V-shaped recovery, the future of the beverage industry is uncertain.
Overall POWR Rating: B (Buy)
KO is rated “Buy” due to its impressive past performance, short-and-long-term bullishness, and financial strength, as determined by the four components of our overall POWR Rating.
KO is a good investment opportunity for investors looking for stable cash flows from their investments in the form of dividend. The stock pays an annual dividend of $1.64, which yields 3.23%. KO can prove to be a savior with its history of stable dividends along with capital appreciation in the long run. This, combined with solid growth momentum and favorable analyst sentiment, makes it a good bet now.
KO has an average broker rating of 1.26, which indicates a favorable analyst sentiment. Of the 21 Wall Street analysts that rated the stock, 14 rated it “Strong Buy”. KO’s EPS is expected to rise at a rate of 2.9% per annum over the next five years.
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KO shares were trading at $51.29 per share on Monday afternoon, up $0.48 (+0.94%). Year-to-date, KO has declined -4.91%, versus a 11.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Madhavi Taneja
Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service. More...
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