Category: KO

Coca-Cola (NYSE:KO) announces its next round of earnings this Monday, April 19. Here is Benzinga’s everything-that-matters guide for this Monday’s Q1 earnings announcement.

Net Income, Earnings, And Earnings Per Share

Earnings and EPS are useful metrics of profitability. Total earnings also known as net income is equal to total revenue minus total expenses. Dividing net income by the total number of shares outstanding yields EPS.

Earnings And Revenue

Analysts expect Coca-Cola earnings of $0.5 per share. Revenue will likely be around $8.61 billion, according to the consensus estimate. Coca-Cola EPS in the same period a year ago totaled $0.51. Revenue was $8.60 billion.

What Are Analyst Estimates And Earnings Surprises, And Why Do They Matter?

Wall Street analysts who study this company will publish analyst estimates of revenue and EPS. The averages of all analyst EPS and revenue estimates are called the “consensus estimates”; these consensus estimates can have a significant effect on a company’s performance during an earnings release. When a company posts earnings or revenue above or below a consensus estimate, it has posted an “earnings surprise”, which can really move a stock depending on the difference between actual and estimated values.

If the company were to report earnings in line when it publishes results Monday, quarterly profit would be down 1.96%. Sales would be up 0.1% on a year-over-year basis. Here is how the company’s reported EPS has stacked up against analyst estimates in the past:

Stock Performance

Shares of Coca-Cola were trading at $53.32 as of April 15. Over the last 52-week period, shares are up 14.81%. Given that these returns are generally positive, long-term shareholders are probably content going into this earnings release.

Do not be surprised to see the stock move on comments made during its conference call. Coca-Cola is scheduled to hold the call at 08:30:00 ET and can be accessed here.

Coca-Cola stock (NYSE: KO), which has still not seen a full recovery to its pre-Covid level, may be a decent investment opportunity at the moment. The stock traded around $60 pre-Covid in February 2020 and is 11% below that level. However, the stock has gained 40% since its March lows of $37, following the Fed’s stimulus package and measures announced by other economies. The gradual lifting of lockdowns and successful vaccine rollout has further enthused markets in anticipation of faster economic recovery. However, the stock is unlikely to surpass its pre-Covid level anytime soon, as most of its business depends on demand from people going to entertainment venues, sporting events, etc. These locations are not yet fully operational in most parts of the world. With the recent spike in Covid cases, there are some forms of lockdowns imposed again in certain economies, thus slowing the recovery in demand. Therefore, in the absence of another complete lockdown (as was seen in 2020) and implementation of the vaccination program the stock is likely to rise, but full recovery to February 2020 levels looks unlikely in the near term. KO stock has a potential upside of about 10%. Our conclusion is based on our detailed comparison of Coca-Cola stock performance during the current crisis with that during 2008 recession in our dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• Since 3/24/2020: S&P 500 recovers 85% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how Coca-Cola

KO
and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Coca-Cola and S&P 500 Performance During 2007-08 Crisis

We see KO stock declined from levels of around $29 in September 2007 (pre-crisis peak) to levels of a little over $20 in March 2009 (as the markets bottomed out), implying KO stock lost 29% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of little less than $29 in early 2010, rising by 40% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

Coca-Cola Fundamentals Over Recent Years

Coca-Cola revenues declined 9% from $36.2 billion in 2017 to $33 billion in 2020, primarily led by refranchising (franchise owners record revenues from bottling plants, while Coca-Cola earns fees from these franchisees) of its bottling plants as well as the impact of lockdowns during the pandemic in 2020. However, with bottling being a low-margin business, the refranchising of it led to a rise in margins and thus earnings went up from $0.29 per share in 2017 to $2.09 in 2019. EPS fell to $1.80 in 2020 due to the pandemic impact but is still higher than the years before 2019.

Does Coca-Cola Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

KO’s total debt decreased from $48 billion in 2017 to $43 billion in 2020, while its total cash decreased from around $11.4 billion to $9.1 billion over the same period. The company generated almost $10 billion in cash from its operations in 2020, which puts it in a reasonably comfortable liquidity position to deal with the current crisis.

Conclusion

Phases of Covid-19 Crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Despite the recent surge in the number of new Covid-19 cases in the U.S., we expect continued improvement in demand to buoy market expectations. As investors focus their attention on expected 2021 results, we believe The Coca-Cola Company stock has the potential for modest gains of about 10% once fears surrounding the Covid outbreak are put to rest. As per Trefis, Coca-Cola valuation reflects a fair price estimate of $58 for KO’s stock.

While KO stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Coca-Cola vs Merck shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

Topline

A group of Georgia lawmakers are demanding Coca-Cola products be removed from their office suite after the company’s CEO panned Georgia’s new voting law, the latest boycott called by Republicans to retaliate against companies they claim are contributing to an “out of control cancel culture.”

Key Facts

Key Background

Last week, Georgia Gov. Brian Kemp signed into law a bill to tighten voting restrictions, leading to sweeping outcry from critics who dubbed the legislation “Jim Crow 2.0.” James Quincey, the chief executive of Atlanta-based Coca Cola, told CNBC the law is “unacceptable,” and “a step backwards.” The new Georgia law, passed March 25, stipulates increased identification requirements for mail-in voting, prohibits third-party groups from passing out snacks or water to voters waiting in line and tightens how many ballot drop boxes are permitted in Georgia. Georgia lawmakers responded to criticism from Delta by voting March 31 to strip the airline of a jet fuel tax break worth tens of millions. Major League Baseball also announced Friday it would move its All-Star Game, originally slated for Atlanta this year, to another state because of the new voter restrictions. 

Chief Critic

Voting rights activist Stacey Abrams last week asked businesses not to boycott Georgia over the new law, writing in an op-ed for USA Today that boycotts could hurt the same working-class people who will be most disenfranchised by the new voting restrictions. “[Leaving] us behind won’t save us,” Abrams wrote. “So I ask you to bring your business to Georgia and, if you’re already here, stay and fight. Stay and vote.”

Further Reading

Twitter, Microsoft, MLB Among Group Denouncing Voting Restrictions (Forbes)

Georgia House Passes Bill Stripping Delta Of A Multimillion Tax Break After It Slammed The State’s New Voting Restrictions (Forbes)

Georgia GOP-Backed Voting Restrictions Face Pushback From Business Lobby (Forbes)

Republicans Vow Boycott, Retaliation Against MLB Over Pulled All-Star Game (Forbes)

In the latest trading session, Coca-Cola (KO Quick QuoteKO – Free Report) closed at $53.15, marking a -1.3% move from the previous day. This move lagged the S&P 500’s daily loss of 0.32%. Elsewhere, the Dow lost 0.32%, while the tech-heavy Nasdaq lost 0.11%.

Coming into today, shares of the world’s largest beverage maker had gained 7.92% in the past month. In that same time, the Consumer Staples sector gained 9.77%, while the S&P 500 gained 4.4%.

Investors will be hoping for strength from KO as it approaches its next earnings release, which is expected to be April 19, 2021. The company is expected to report EPS of $0.50, down 1.96% from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $8.52 billion, down 0.92% from the year-ago period.

Looking at the full year, our Zacks Consensus Estimates suggest analysts are expecting earnings of $2.12 per share and revenue of $36.73 billion. These totals would mark changes of +8.72% and +11.26%, respectively, from last year.

Any recent changes to analyst estimates for KO should also be noted by investors. These revisions help to show the ever-changing nature of near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Our research shows that these estimate changes are directly correlated with near-term stock prices. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.

The Zacks Rank system, which ranges from #1 (Strong Buy) to #5 (Strong Sell), has an impressive outside-audited track record of outperformance, with #1 stocks generating an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection has moved 0.04% higher. KO is currently a Zacks Rank #3 (Hold).

Digging into valuation, KO currently has a Forward P/E ratio of 25.45. This represents a premium compared to its industry’s average Forward P/E of 23.06.

We can also see that KO currently has a PEG ratio of 4.71. The PEG ratio is similar to the widely-used P/E ratio, but this metric also takes the company’s expected earnings growth rate into account. The Beverages – Soft drinks was holding an average PEG ratio of 2.87 at yesterday’s closing price.

The Beverages – Soft drinks industry is part of the Consumer Staples sector. This group has a Zacks Industry Rank of 109, putting it in the top 43% of all 250+ industries.

The Zacks Industry Rank includes is listed in order from best to worst in terms of the average Zacks Rank of the individual companies within each of these sectors. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Be sure to follow all of these stock-moving metrics, and many more, on Zacks.com.

Activists in Georgia are calling for a boycott of Coca-Cola until the Atlanta-based company comes out against the state’s new election-law changes.

The African Methodist Episcopal Church, which represents 500 black churches, on Thursday called for the boycott, and the hashtag #BoycottCocaCola was trending into the weekend.

If “Coca-Cola wants black and brown people to drink their product, then they must speak up when our rights, our lives and our very democracy as we know it is under attack,” Bishop Reginald Jackson said at an Atlanta rally Thursday outside the Georgia Capitol, as state lawmakers voted to adopt the new provisions and Gov. Brian Kemp signed them into law.

The new rules impose additional identification requirements for absentee ballots, restrictions on drop boxes and earlier poll closures, among other measures.

Biden on Friday called the new law “Jim Crow in the 21st century.”

Coca-Cola said in a March statement that the company supports “improvements that would enhance accessibility, maximize voter participation, maintain election integrity, and serve all Georgians.”

Coca-Cola (NYSE: KO) shares have weakened more than 9% since the beginning of January, and the current share price stands around $49. Expectations of further stimulus lifted the U.S. stock market last week, but Coca-Cola shares remain under pressure.

Fundamental analysis: IRS could apply the same tax treatment to Coca-Cola for the tax years after 2009

Coca-Cola shares are trading again below $50, and the technical picture implies that the price could fall even more this February. Shares of this company remain under pressure since JPMorgan downgraded them after the U.S. Tax Court ruled in favor of the IRS, which determined that K.O. would owe ~$3.3bn in taxes for the tax years 2007 through 2009.

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There are also risks that IRS could apply the same tax treatment to Coca-Cola for the tax years after 2009, and the amount, in this case, could be more than triple. JP Morgan assigned a $55 price target on Coca Cola due to the rising risk while remaining positive over a long term period.

“Longer term, we continue to like K.O. fundamentally, in particular its high beta to the reopening (~50% of global volumes sold on-premise). We believe this tax overhang may linger into a good part of 2021, and the company may be forced to place ~$3.3bn in escrow, which would be a cash outflow, besides a potential accounting provision,” reported JP Morgan.

Deutsche Bank also downgraded Coca-Cola to a “hold” rating from “buy” as the company’s business is still struggling to recover to pre-Covid levels. Deutsche Bank lowered its price target to $55 from $67 but believes that a U.S. Tax Court judgment is likely to be settled in the long term.

Analyst firm Guggenheim announced that maybe it is not the best moment to invest in Coca-Cola shares as the company is going through a transition year. “Coca-Cola returning to 5-6% organic growth post-Covid is attainable, in our view, but it’s more asset-light structure limits cost leverage that we estimate will ultimately confine EPS growth in the high-single digits range,” said analyst Laurent Grandent from Guggenheim.

Technical analysis: Coca-Cola shares remain under the pressure

Coca-Cola shares are trading again below $50, and according to analysts, maybe it is not the best moment to invest in Coca-Cola. The technical picture implies that the price could fall even more this February, and the coronavirus Covid-19 pandemic still impacts the company’s business.

Data source: tradingview.com

The important support levels are $48 and $44, $52 and $55 represent the resistance levels. If the price jumps above $52, it would be a signal to trade Coca-Cola shares, and we have the open way to $55.

On the other side, if the price falls below $48, it would be a “sell” signal, and we have the open way to $46 or even $44 support.

Summary

Analysts lowered their price target on Coca-Cola shares after the U.S. Tax Court ruled in favor of the IRS, which determined that K.O. would owe ~$3.3bn in taxes for the tax years 2007 through 2009. According to analysts, maybe it is not the best moment to invest in Coca-Cola, and the technical picture implies that the price could fall even more this February.