Category: KO

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.

Investors are hoping to hear good news from Coca-Cola (NYSE:KO) in just a few days. The beverage titan turned in an unusually weak performance for most of 2020 as the pandemic pressured demand for on-the-go drink purchases. But Coke’s management team responded with major strategic shifts, including a push into e-commerce in recent months.

CEO James Quincey and his team will likely highlight wins like those, along with popular innovative releases in niches like sparkling water, teas, and sodas, when the company reports fourth-quarter earnings results while issuing its forecast for the new fiscal year. Let’s take a closer look at the announcement set for Feb. 10.

Image source: Getty Images.

When the rebound happens

Wall Street is bracing for another weak sales outing because Coke is still hurting from reduced consumer mobility and a lack of crowded sports events and concerts. Sales in the prior quarter declined 6%, with volumes falling 4% compared to PepsiCo‘s (NASDAQ:PEP) 1% uptick. Coke’s business is more focused on away-from-home consumption, and it lacks Pepsi’s large food and snack segment.

KO revenue (TTM) data by YCharts. TTM = trailing 12 months.

Those differences have created a big divergence between the two businesses during the pandemic, with Pepsi hardly losing a step even as Coke’s sales plummeted.

Investors are expecting to see another modest revenue decline in this report as sales fall 5%. Executives back in October warned investors to brace for sluggish short-term results as COVID-19 outbreaks threatened new mobility restrictions. We’ll find out this week how much of an impact that situation had on the company’s organic growth.

Getting more efficient

Coke can’t do anything about the timing of the pandemic’s end, but management has room to make improvements to the company’s finances. Cost cuts helped push operating margin higher last quarter despite the sales slump. Coke is trimming hundreds of underperforming brands, too, so that it can focus on popular products like sparkling waters and zero-sugar sodas.

The company is getting better at developing and releasing these products, and investors should see immediate benefits showing up in metrics like operating margin and strong cash flow. CFO John Murphy told investors recently, “While much has changed with the onset of the pandemic, our focus on converting top-line growth to maximize returns has not.”

Staying cautious

Coke won’t have a lot of certainty when it comments on 2021. Management declined to issue even a three-month outlook back in October, and the virus is still impacting economic trends around the world.

The good news is that Coke’s quarterly reports will get progressively easier from here. The fiscal first quarter showed the beginning of the pandemic’s impact as demand plunged in March and April. Those declines mean the company will certainly announce a return to global volume growth this year, even if the fiscal fourth quarter marked its fourth consecutive quarter of losses.

PepsiCo will announce its results a day after Coke, and the consumer staples giant is expected to report a solid 4% organic sales boost for the year while projecting more growth for 2021.

Coke’s rebound timing is less certain. Its more-focused portfolio means it will see a sharper rebound once consumer life gets back to normal. But it could be almost another year before those shifts allow the company to start setting sales and profit records again.

Wall Street expects a year-over-year decline in earnings on lower revenues when Coca-Cola (KO Quick QuoteKO – Free Report) reports results for the quarter ended December 2020. While this widely-known consensus outlook is important in gauging the company’s earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.

The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on February 10. On the other hand, if they miss, the stock may move lower.

While management’s discussion of business conditions on the earnings call will mostly determine the sustainability of the immediate price change and future earnings expectations, it’s worth having a handicapping insight into the odds of a positive EPS surprise.

Zacks Consensus Estimate

This world’s largest beverage maker is expected to post quarterly earnings of $0.41 per share in its upcoming report, which represents a year-over-year change of -6.8%.

Revenues are expected to be $8.74 billion, down 3.6% from the year-ago quarter.

Estimate Revisions Trend

The consensus EPS estimate for the quarter has been revised 0.69% lower over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that the direction of estimate revisions by each of the covering analysts may not always get reflected in the aggregate change.

Price, Consensus and EPS Surprise

Earnings Whisper

Estimate revisions ahead of a company’s earnings release offer clues to the business conditions for the period whose results are coming out. This insight is at the core of our proprietary surprise prediction model — the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Thus, a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate. However, the model’s predictive power is significant for positive ESP readings only.

A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.

Please note that a negative Earnings ESP reading is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How Have the Numbers Shaped Up for Coke?

For Coke, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become bullish on the company’s earnings prospects. This has resulted in an Earnings ESP of +0.35%.

On the other hand, the stock currently carries a Zacks Rank of #3.

So, this combination indicates that Coke will most likely beat the consensus EPS estimate.

Does Earnings Surprise History Hold Any Clue?

While calculating estimates for a company’s future earnings, analysts often consider to what extent it has been able to match past consensus estimates. So, it’s worth taking a look at the surprise history for gauging its influence on the upcoming number.

For the last reported quarter, it was expected that Coke would post earnings of $0.45 per share when it actually produced earnings of $0.55, delivering a surprise of +22.22%.

Over the last four quarters, the company has beaten consensus EPS estimates four times.

Bottom Line

An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss.

That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it’s worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.

Coke appears a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.

Warren Buffett, chief executive officer of Berkshire Hathaway, drinks a Cherry Coca-Cola.

Daniel Acker/Bloomberg

With the year almost over, we’re taking a look at all 30 stocks in the Dow Jones Industrial Average, starting with the worst performers— Boeing and Walgreens Boots Alliance —and working our way up to the highest-flying stock in the benchmark— Apple. The ranking may shift before the close of 2020 trading, but the stories behind the stocks shouldn’t.

Enjoying an ice cold Coke at the movies, at a restaurant with friends, or while cheering your favorite sports team may be a habit for many. Unfortunately for the stock, the pandemic meant people weren’t doing any of those things this year, although 2021 looks brighter.

Coca-Cola (ticker: KO) is down about 6% in 2020 at recent check, putting it in the bottom half of the Dow in terms of year to date performance.

Coca-Cola (KO Quick QuoteKO – Free Report) closed the most recent trading day at $53.08, moving +0.61% from the previous trading session. This change outpaced the S&P 500’s 0.08% gain on the day. Meanwhile, the Dow gained 0.38%, and the Nasdaq, a tech-heavy index, lost 0.29%.

Heading into today, shares of the world’s largest beverage maker had lost 0.86% over the past month, lagging the Consumer Staples sector’s gain of 2.91% and the S&P 500’s gain of 3.8% in that time.

KO will be looking to display strength as it nears its next earnings release. On that day, KO is projected to report earnings of $0.41 per share, which would represent a year-over-year decline of 6.82%. Our most recent consensus estimate is calling for quarterly revenue of $8.69 billion, down 4.21% from the year-ago period.

For the full year, our Zacks Consensus Estimates are projecting earnings of $1.89 per share and revenue of $33.08 billion, which would represent changes of -10.43% and -9.59%, respectively, from the prior year.

Investors should also note any recent changes to analyst estimates for KO. Recent revisions tend to reflect the latest near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company’s business and profitability.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. To benefit from this, we have developed the Zacks Rank, a proprietary model which takes these estimate changes into account and provides an actionable rating system.

The Zacks Rank system ranges from #1 (Strong Buy) to #5 (Strong Sell). It has a remarkable, outside-audited track record of success, with #1 stocks delivering an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection has moved 0.07% higher. KO is currently sporting a Zacks Rank of #3 (Hold).

Digging into valuation, KO currently has a Forward P/E ratio of 27.99. This valuation marks a premium compared to its industry’s average Forward P/E of 23.88.

Meanwhile, KO’s PEG ratio is currently 6.66. 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 industry currently had an average PEG ratio of 4.15 as of yesterday’s close.

The Beverages – Soft drinks industry is part of the Consumer Staples sector. This industry currently has a Zacks Industry Rank of 222, which puts it in the bottom 13% of all 250+ industries.

The Zacks Industry Rank gauges the strength of our individual industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

To follow KO in the coming trading sessions, be sure to utilize Zacks.com.

The Coca-Cola Company (NYSE: KO) said last week it will slash its global workforce by 2,200 jobs with more than half of them planned for the United States. The company attributed the move to business disruptions in recent months related to the ongoing Coronavirus pandemic that has so far infected more than 76 million people worldwide and caused a little under 1.7 million deaths. In an emailed statement, Coca-Cola said:

“The pandemic was not a cause for these changes, but it has been a catalyst for the company to move faster.”

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Coca-Cola offered voluntary layoffs to workers in August

Amidst a hit to its sales in recent month, Coca Cola had offered voluntary layoff packages in August to four thousand of its workers in Puerto Rico, Canada, and the United States. The American multinational, however, is yet to disclose how many of them accepted the package.

In a report published in October, Coca-Cola said its net income slid to £1.33 billion in the fiscal third quarter versus the year-ago figure of £1.98 billion, as the ongoing COVID-19 crisis weighed on demand. The U.S. company adopted DLT and Ethereum to improve its supply chain in August.

Coca-Cola closed almost flat on the weekly chart on Friday. At £39.71 per share, the Atlanta-based company’s shares are now 2.5% down year to date in the stock market after recovering from a sharply lower £27.78 per share in late March, when the impact of the pandemic was at its peak.

Coca-Cola didn’t give the timeline for the announced layoff

The U.S. beverage corporation refrained on Thursday from highlighting the timeline when the announced layoff will be implemented. According to Coca-Cola, its global workforce comprised of roughly 86,200 employees at the start of the year. 10,400 of these workers, as per the company, were based in the United States.

The world’s 3^rd largest beverage company also highlighted in its announcement on Thursday that close to 500 jobs that are to be slashed as part of its restructuring will be in Atlanta Metropolitan Area – where it is headquartered. On Tuesday, Coca-Cola European partners invested in countertop dispensing machine company, Lavit.

Coca-Cola performed fairly upbeat in the stock market last year with an annual gain of a little under 20%. At the time of writing, it is valued at £170.78 billion and has a price to earnings ratio of 27.87.

Coca-Cola (KO Quick QuoteKO – Free Report) closed at $53.28 in the latest trading session, marking a +0.41% move from the prior day. This change lagged the S&P 500’s 0.58% gain on the day. Meanwhile, the Dow gained 0.49%, and the Nasdaq, a tech-heavy index, added 0.84%.

Prior to today’s trading, shares of the world’s largest beverage maker had gained 0.86% over the past month. This has lagged the Consumer Staples sector’s gain of 1.51% and the S&P 500’s gain of 2.12% in that time.

Wall Street will be looking for positivity from KO as it approaches its next earnings report date. On that day, KO is projected to report earnings of $0.41 per share, which would represent a year-over-year decline of 6.82%. Our most recent consensus estimate is calling for quarterly revenue of $8.69 billion, down 4.21% from the year-ago period.

KO’s full-year Zacks Consensus Estimates are calling for earnings of $1.88 per share and revenue of $33.06 billion. These results would represent year-over-year changes of -10.9% and -9.66%, respectively.

Investors should also note any recent changes to analyst estimates for KO. 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.

Based on our research, we believe these estimate revisions are directly related to near-team stock moves. We developed the Zacks Rank to capitalize on this phenomenon. Our system takes these estimate changes into account and delivers a clear, actionable rating model.

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. The Zacks Consensus EPS estimate remained stagnant within the past month. KO currently has a Zacks Rank of #3 (Hold).

Investors should also note KO’s current valuation metrics, including its Forward P/E ratio of 28.17. Its industry sports an average Forward P/E of 24.03, so we one might conclude that KO is trading at a premium comparatively.

Meanwhile, KO’s PEG ratio is currently 6.71. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company’s expected earnings growth rate. KO’s industry had an average PEG ratio of 4.13 as of yesterday’s close.

The Beverages – Soft drinks industry is part of the Consumer Staples sector. This industry currently has a Zacks Industry Rank of 211, which puts it in the bottom 18% 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.

The IPO of Coca-Cola (NYSE:KO) took place more than a century ago. The company issued 600,000 shares of publicly available stock in September 1919 at $40 per share, according to a company news release.

Coca-Cola had already evolved significantly since Atlanta pharmacist John Stith Pemberton invented the formula for the original carbonated beverage in 1886. However, few could probably imagine where Coca-Cola or its stock would go in the coming decades.

The value of Coca-Cola today

Consumers can now find Coca-Cola products in more than 200 countries. It has also become a beverage empire encompassing over 500 brands across numerous types of drinks, though it intends to reduce that number over the next few years.

Still, such a footprint means Coca-Cola stock, like most consumer staples stocks, tends not to draw as much attention as newer, higher-growth stocks.

Image source: Getty Images.

Nonetheless, for investors who imagine the time horizon for owning a stock decades out, the returns look considerably more impressive. Throughout its history, Coca-Cola has experienced 11 stock splits. So one share sold in 1919 has become 9,216 shares today.

Hence, if an ancestor of yours had purchased three shares of Coca-Cola stock for $120 at the IPO and eventually handed over the split shares to you, just those 27,648 shares would now be worth more than $1.483 million.

The Coca-Cola dividend

The company also made its first dividend payment in 1920 and has made almost 400 consecutive quarterly dividend payments since then.

Today, the dividend payout stands at $1.64 per share. Multiply those 27,648 shares by the dividend and you have a yearly dividend income this past year of $45,342 to add to the share price value. At the current stock price, the dividend yields about 3.2%. To put that into perspective, the S&P 500 index average dividend yield is about 1.6%.

Though that yield sounds compelling for a new investor, the bulk of the benefit has accrued to those who held the stock long term. Coca-Cola implemented its 58th consecutive annual dividend increase in February. Only a handful of stocks have a longer track record of consecutive dividend increases than Coca-Cola. These stocks, as well as Coke, are known as Dividend Kings.

Admittedly, the payout has become a significant expense for the company. The dividend claimed about $3.5 billion of the company’s $5.5 billion in free cash flow in the most recent quarter.

Nonetheless, this makes the payout sustainable. More importantly, since breaking the long payout streak could undermine confidence in the stock, investors can probably expect another payout hike next year and in the years to come.

Warren Buffett and Coca-Cola

The payout, along with the overall value proposition, is what probably attracted Warren Buffett to the stock. His company, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), made its first purchase of Coca-Cola stock in 1988.

Buffett would go on to invest about $1.3 billion in Coca-Cola. The company now holds 400 million shares, or 9.3% of Coca-Cola’s stock. That stake is worth approximately $20.6 billion today.

The stock has only risen by just over 60% over the last 10 years, significantly underperforming the S&P 500. Nonetheless, Buffett is probably happy with Coca-Cola’s performance in one critical respect.

KO data by YCharts

This year, his 400 million shares generated $656 million in dividends. This is more than a 50% return on his original investment, meaning he currently receives the money back on this investment (and then some) every two years without selling a single share!

The lesson of Coca-Cola stock

Indeed, most investors do not have a 100-year investment horizon. Even if they did, they should not expect one of today’s shares to split into more than 9,000 a century from now. Since Coca-Cola is now available in nearly all countries, driving growth has become a more difficult challenge.

Still, the fact that dividend returns are roughly double the S&P 500 average might attract new investors today.

Moreover, even if investors decide not to buy Coca-Cola stock, it offers one critical lesson. Investors like Buffett who find a solid company and hold on to that for decades could earn considerable rewards.

This is a huge incentive to ignore the day-to-day machinations of a stock. Instead, the largest rewards could come to stockholders who focus on long-term growth and quietly collect dividends.