Stock Analysis & Ideas

Coca-Cola’s ‘Perfect 10’ Smart Score Suggests Strong Performance Ahead

Story Highlights

Coca-Cola’s pricing strategy is working, and the company’s operating margins are expanding. The company beat Wall Street expectations and plans to yield $12 billion in cash flow this year despite a tough environment. Moreover, its generous dividend yield and share buyback program make it an attractive stock.

Coca-Cola (KO) is the largest non-alcoholic drink maker in the world and has been incredibly successful since its inception. Its stock has done relatively well in weathering macroeconomic headwinds. KO’s solid fundamentals have earned it a ‘Perfect 10’ Smart Score rating and a Strong Buy rating from Wall Street analysts. These factors suggest that KO stock can perform well, going forward.

Surprisingly, KO stock remained relatively stable after its most recent earnings report was released in April, entailing stability that investors need at this time.

Furthermore, KO is a stock that investors can rely on during the current downturn. A lot of this has to do with its unbelievable brand equity and the inelasticity of its products. So, with its inflation-resistant business, solid dividend, and growth strategy, we are bullish on KO stock.

Coca-Cola’s Top Line Has Rebounded

Coca-Cola struggled somewhat during the pandemic because places such as theatres and restaurants were shut down. Fortunately, the company is driving growth again amid a post-pandemic rebound. KO is enjoying a massive rebound in its top line, which should have a trickle-down effect on its bottom-line results.

Surprisingly, Coca-Cola’s comeback is more potent than people expected. The company’s organic revenue increased 18% in the first quarter compared to 9% in the previous quarter.

Moreover, its revenues of $10.5 billion surpassed the analyst’s expectations of $9.83 billion. Similarly, the company’s earnings per share of $0.64 exceeded analysts’ expectations of $0.58.

Coca-Cola’s huge marketing budget, pricing strategies, and massive distribution network have allowed it to generate higher revenue and win market share through its robust sales channels. According to the company’s management, “the growth this quarter is a clear indicator of our power.”

Coca-Cola has undoubtedly benefited from the reopening of the economy and will continue to do so in the long run. CNBC’s Jim Cramer stated that investors should consider buying KO because it has remained a consistent winner throughout a shaky stock market this year, producing solid results despite high inflation.

Coca-Cola Leverages Its Brand Power

Coca-Cola’s pricing power has helped the company weather through the inflation storm. The company’s gross profit surged 16% in the first quarter despite high labor, transportation, and raw material costs. Furthermore, Coca-Cola’s operating margin increased, too, resulting in adjusted earnings jumping 16%.

The company’s CEO, James Quincey, said that Coca-Cola is more of a franchising model than a bottling business. Therefore, the company has strong brand power and a strong beverage portfolio – two factors that have contributed strongly to Coca-Cola’s revenue generation.

Also, Coca-Cola’s financial standing is strong. The company closed its first quarter with $10.35 billion cash in hand. Moreover, its venture into alcoholic beverages adds to its growth story. Recently, Coca-Cola announced a partnership with Brown Forman (BF.B) to make canned jack and coke cocktails.

All of these factors make it highly attractive to investors. However, there’s one that trumps everything, which is the fact that the company is a Dividend King.

Coca-Cola has raised its dividend for 60 years in a row. This isn’t a small feat considering that companies need to consistently grow their cash flows and earn ample profits, regardless of the economic cycles, in order to achieve this.

Currently, Coca-Cola pays a forward dividend yield of 2.8%. Moreover, investors are likely to witness higher cash returns over time from increasing dividends and stock buybacks.

These factors imply that this blue-chip stock can offer a substantial return to investors over the long haul, but, of course, the company’s business is prone to changes in the macroeconomic environment. Still, Coca-Cola’s recent quarterly reports entail that it can generate high sales and profits despite high inflation and uncertainty.

Wall Street’s Take on KO Stock

Turning to Wall Street, KO stock maintains a Strong Buy consensus rating. Out of 17 total analyst ratings, 13 Buys, four Holds, and zero Sell ratings were assigned over the past three months.

The average KO price target is $70.47, implying 14.6% upside potential. Analyst price targets range from a low of $64 per share to a high of $76 per share.

The Takeaway – KO’s Expensive Price Tag is Worth It

Coca-Cola is trading at more than 25 times forward earnings, which makes it a bit expensive. However, its solid dividend yield of 2.8%, strong cash position, and revenue generation offer hope to investors.

The company beat Wall Street expectations on earnings and revenue despite inflation and supply-chain issues due to lockdowns in China. Such developments show that Coca-Cola is arguably a drink for everyone. Therefore, investors should consider adding KO to their portfolios.


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