Case Study: Coka-Cola (KO) stock according to high performing analysts
Key Points
Performance
Coca-Cola (KO) shares rose by 0.42% this week; however, they’re still down by 4.50% on a year-to-date basis. This compares poorly to the S&P 500 which is up by 6.67% during 2023 thus far.
Event & Impact
Coca-Cola posted fourth quarter results this week, beating Wall Street estimates on the top-line and meeting expectations on the bottom-line. During Q4, KO’s revenue totaled $10.1 billion, beating Wall Street’s consensus estimate by $180 million, representing 6.3% year-over-year growth. Coke’s Q4 non-GAAP earnings-per-share came in at $0.45.
Noteworthy News:
Coca-Cola announced its 61st consecutive annual dividend increase alongside earnings. Also, the company provided full-year 2023 guidance, calling for organic sales growth in the 7-8% range, roughly doubling Wall Street’s consensus of 3.59%.
Nobias Insights
48% of recent articles published by credible authors focused on Coca-Cola shares offer a “neutral” bias. 2 out of 2 credible Wall Street analysts who cover KO believe shares are likely to rise in value. The average price target applied to KO by these credible analysts is $73.00, which implies upside potential of approximately 21.4% relative to the stock’s current share price of $60.12.
Bullish Take Tradevestor, a Nobias 4-star rated author, said, “But as I've written in the past, stocks like Coca-Cola are my homeowners and car insurance. I don't really pay attention to them until I need them. But when I need them, boy am I glad I had them! 2022 proved this emphatically, as Coca-Cola outperformed the market by more than 20% at various points.”
Bearish Take Jonathan Wheeler, a Nobias 4-star rated author, said, “I just don't see the case for an investment today. There are much better opportunities out there for income, dividend growth, or just growth in general. There are also much cheaper ones. KO stock is a hold, I won't be buying any.”
KO Feb 2023
Coca-Cola (KO) reported fourth quarter earnings this week. The company also announced its 61st consecutive annual dividend increase, raising its quarterly payment by 4.5% from $0.42/share to $0.44/share.
Coca-Cola beat Wall Street’s revenue estimates during Q4 and posted earnings-per-share that met expectations. Yet, KO shares have fallen by 4.50% on a year-to-date basis, underperforming the S&P 500, which is up by 6.67% during this same time period, by a wide margin.
Bullish Nobias Credible Analysts Opinions:
Tradevestor, a Nobias 4-star rated author, covered Coca-Cola’s Q4 report in an article published at Seeking Alpha this week. The author touched upon the beverage giant’s recent results, stating, “Compared to the Q3 quarter, which was a beat all around along with a raise in outlook, Q4 seems to be a mixed bag on initial review with EPS being inline, revenue beating by 1%, and global unit case volume declining by 1%.”
They went on, writing that Coca-Cola produced, “Q4 EPS of 45 cents came in line with expectations. That means, for FY 2022, Coca-Cola reported a comparable, non-GAAP EPS of $2.48.”
Tradevestor also said that Coca-Cola produced, “Q4 Revenue of $10.13 Billion beat by $180 Million. That helped Coca-Cola achieve a 11% full year revenue increase to $43 Billion.” “Organic sales came in at 15%, well above the consensus of 11%,” they said.
Looking at the company’s future guidance, Tradevestor said, “Coca-Cola expects organic revenue growth of 7% to 8% in 2023, despite inflationary and currency based headwinds.” “As a result,” they continued, “the company expects EPS growth to be a little muted at 4% to 5% in 2023. Using 2022's reported EPS of $2.48, the guided range for 2023 is between $2.57 and $2.60.”
“In summary,” Tradevestor wrote, “Coca-Cola had a reasonably strong Q4 as expected, but it was not an "all-out beat" like Q3 was.” They continued, “I believe at 23 times forward earnings, the stock is fully valued here, and with the market getting into "risk on" mode in the early days of 2023, I expect Coca-Cola to trade sideways unless inflation and as a result, The Fed, catch the market by surprise, sending more investors to seek safety.” The author said, “I am holding onto my The Coca-Cola Company shares and reinvesting the dividends while waiting for a pullback to add more.”
Regarding their long-term outlook for shares, Tradevestor summarized their reason for ownership, stating: “Coca-Cola has underperformed the S&P 500 Index (SP500) by about 10% YTD, and I expect this to continue should The Fed continue its recent dovish stance as inflation cools down. But as I've written in the past, stocks like Coca-Cola are my homeowners and car insurance. I don't really pay attention to them until I need them. But when I need them, boy am I glad I had them! 2022 proved this emphatically, as Coca-Cola outperformed the market by more than 20% at various points.”
Bearish Nobias Credible Analysts Opinions:
Jonathan Wheeler, a Nobias 4-star rated author, offered a more cautious take on Coca-Cola shares in a report that he recently published. Wheeler began his piece by stating, “Coca-Cola (NYSE:KO) is a company with a brand known by almost every person in the world. The length of its operating history and strength of its marketing have put it in a position to drive significant returns for its shareholders over time. Adding on to that, Buffett's legendary investment in KO back in the 1980's is discussed consistently in value circles, and it's elevated KO to an almost untouchable status among many investors.” “However,” he pivoted, “it's highly likely the next 2 decades won't look like the last 2 did for the company.”
Wheeler went on to highlight why it is that his future outlook is bleaker than Coca-Cola’s esteemed past, stating, “Debt has climbed consistently over the past 10 years, the company has relied heavily on acquisitions to change its volume mix in the face of rapidly shifting consumer tastes, and investors today have to hang their hat on further international penetration.”
He continued, “With the difficult macroeconomic environment, KO is well-positioned to shield itself from much of the pain due to its strong distributor and bottling partnerships and rock-solid pricing power. However, international distribution will be more difficult to manage compared to the disparate and smaller distributors in America.”
That isn’t to say that Coke hasn’t had success overseas. Wheeler acknowledges recent success, writing, “The company is among an elite group that has managed to find broad success globally, with Sprite recently becoming a $1B brand in India, and emerging markets will continue to be the major growth driver for KO as we look ahead.”
However, he notes, “The thing I want to point out here is that KO has shifted its company over time well to accommodate headwinds in consumer tastes. But with the company's debt load and 75% of earnings going out the door as dividends, it will be more difficult for the company to continue to snatch up brands over time.”
“I'm not calling for a liquidity crisis or doom and gloom here,” said Wheeler, “but growth won't be as easy going forward as it was when the company quadrupled its debt load from 2010-2020.”“I don't forecast or expect investors to lose money buying KO,” he said.
“What I do expect is that a purchase at today's valuation doesn't account for the actual likely path for KO from here. The company is likely to continue driving revenue and earnings growth, albeit somewhere in the single-digits. An investment at today's valuation based on analyst estimates for earnings growth and a return to the long-run average (assuming the company should remain at that multiple) could yield around 6% annualized total returns. Half of that comes from the dividend.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Wheeler concluded, “I just don't see the case for an investment today. There are much better opportunities out there for income, dividend growth, or just growth in general. There are also much cheaper ones. KO stock is a hold, I won't be buying any.”
Overall bias of Nobias Credible Analysts and Bloggers:
48% of recent articles published by the credible authors that Nobias tracks on Coca-Cola have expressed a “Neutral” sentiment, showing that many writers agree with Wheeler’s take. However, the credible Wall Street analysts that Nobias tracks who have offered an opinion on KO share are more bullish. 100% of these individuals believe that KO shares are likely to increase in value. Their average price target for Coca-Cola is $73.00, which implies upside potential of approximately 21.4% relative to KO’s current share price of $60.12.
Disclosure: Nicholas Ward is long KO Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.