Amid the current volatile macroeconomic environment, investors are inclined to add blue-chip stocks of stable companies, providing a steady return in the form of dividends, to hedge themselves against a potential market downturn. Therefore, The Coca-Cola Company (KO), currently trading below $100, might be a good choice for reasons explained in the article.

Hotter-than-expected employment data and resilient consumer spending despite stubbornly high inflation have raised the odds of future interest rate hikes by the Fed. Such tenacious rate hikes are feared to tip the economy into a recession. Such extrapolations have quashed investor sentiments, and therefore, the likelihood of a market downturn stands high.

Hence, to hedge against such volatilities, investors could opt for blue-chip stocks with steady returns. KO, a popular beverage giant with a market capitalization of $258.82 billion, manufactures, markets, and sells various non-alcoholic beverages worldwide.

On February 16, 2023, KO’s board of directors announced its 61st consecutive annual dividend increase, raising the quarterly dividend approximately by 4.6% from $0.44 to $0.46 per common share, payable to the shareholders on April 3, 2023. The company paid dividends totaling $7.60 billion in 2022.

KO’s annual dividend of $1.84 per share translates to a 3.08% yield on current prices. Its dividends have grown at 3.2% and 3.5% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 3.05%.

James Quincey, Chairman and CEO of KO, said, “As we begin 2023, we continue to invest in our capabilities and strengthen alignment with our bottling partners to maintain flexibility.”

The stock has declined marginally over the past five days to close its last trading session at $59.32. However, Wall Street analysts expect the stock to reach $68.33 in the upcoming 12 months, indicating a potential upside of 14.2%.

Here are the factors that could influence KO’s performance in the upcoming months:

Solid Financials

For the fiscal fourth quarter that ended December 31, 2022, KO’s non-GAAP net operating revenues came in at $10.20 billion, up 7.7% year-over-year. Its non-GAAP gross profit increased 6% year-over-year to $5.76 billion. Furthermore, its non-GAAP net income and non-GAAP net income per share stood at $1.94 billion and $0.45, respectively.

Robust Profitability

KO’s trailing-12-month EBIT margin of 28.49% is 273.1% higher than the industry average of 7.64%. Also, its trailing-12-month net income margin and levered FCF margin of 22.19% and 18.17% are 589.6% and 619.2% higher than the industry averages of 3.22% and 2.53%, respectively.

KO’s trailing-12-month ROCE, ROTC, and ROTA of 40.51%, 11.16%, and 10.29% are 311.2%, 81%, and 190.6% higher than the industry average of 9.85%, 6.17%, and 3.54%, respectively.

Optimistic Analyst Estimates

For the fiscal first quarter ending March 2023, analysts expect KO’s EPS to increase marginally year-over-year to $0.65. Street expects its revenue to increase 2.9% year-over-year to $10.81 billion for the same quarter.

Moreover, for the fiscal year ending December 2023, its EPS and revenue are expected to increase 4.8% and 4.1% year-over-year to $2.60 and $44.80 billion, respectively. KO topped consensus EPS and revenue estimates in all four trailing quarters.

POWR Ratings Reflect Promising Prospects

KO’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating 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 is rated an A for Sentiment, justified by its optimistic analyst estimates.

It has a B grade for Stability, consistent with its five-year beta of 0.56. It also has a B grade for Quality, in sync with its robust profitability.

Within the B-rated 37 stock Beverages industry, it is ranked #17.

To see additional POWR Ratings for Value, Growth, and Momentum for KO, click here.

View all the top stocks in the Beverages industry here.

Bottom Line

In light of the current market scenario, popular blue-chip stock KO, trading under $100, is well-positioned to witness significant growth, owing to its non-cyclical demand. Moreover, given the company’s solid financials and reliable dividend payments, investors could buy the stock to ensure a steady passive income.

How Does The Coca-Cola Company (KO) Stack up Against Its Peers?

While KO has an overall POWR Rating of B, one might want to consider looking at its industry peers, Coca-Cola FEMSA, S.A.B. de C.V. (KOF), Coca-Cola Consolidated, Inc. (COKE), and Embotelladora Andina S.A. (AKO.B), which have an overall A (Strong Buy) rating.

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KO shares were unchanged in premarket trading Tuesday. Year-to-date, KO has declined -5.96%, versus a 4.00% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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