Is September the Time to Buy Coca-Cola (KO)?

One of the world’s leading beverage companies, The Coca-Cola Company (KO), with a market cap of $261.49 billion, boasts an extensive product portfolio. Firmly established in over 200 nations across the globe, the firm has solidified its leadership role in the international market for non-alcoholic beverages.

This article evaluates why KO could be a solid portfolio addition in September.

Within a vibrant and evolving marketplace where consumer tastes are swiftly transitioning, enterprises are escalating their endeavors to refine the customer buying experience. KO in North America has skillfully satisfied emerging needs through the formulation and execution of strategies centered on customized cost-efficiency and superior offerings. The successful execution of these methods has propelled a surge in volume.

KO persistently grew its customer base. Testament to the company's successful marketing and innovative shift has been the multiple awards bagged by Trademark Coca-Cola® at the esteemed Cannes Lions Festival in June. This strategy is being replicated across KO's total beverage portfolio.

Iconic brands within the company have leveraged their global recognition and launched new product lines to cater to evolving tastes, particularly among younger drinkers. For instance, the Minute Maid brand, acquired as a traditional orange juice over 60 years ago, has evolved into the leading juice brand worldwide.

After double-digit earnings in the last reported quarter, for the fiscal year 2023, KO forecasts an organic revenue (non-GAAP) growth of 8% to 9%, alongside a comparable EPS (non-GAAP) increase of 5% to 6% from the previous year. The company also anticipates generating a free cash flow (non-GAAP) of roughly $9.5 billion.

The stock gained 1.3% over the past six months to close its last trading session at $60.47. Wall Street analysts expect the stock to reach $71.82 in the next 12 months, indicating a potential upside of 18.8%. The price target ranges from a low of $63 to a high of $76.

Institutional investors own 70.5% of the stock, indicating high confidence and credibility in the investment community. Of the 3,028 institutional holders, 1,368 have increased their positions in the stock. Moreover, 131 institutions have taken new positions in the stock with 10,753,887 shares, reflecting signs of bullishness.

Here are some other factors that could shape KO’s performance in the upcoming months:

Robust Financials

For the fiscal second quarter that ended June 30, 2023, KO’s net operating revenues increased 5.7% year-over-year to $11.97 billion, while its non-GAAP gross profit rose 6.6% from the year-ago value to $7.11 billion. The company’s non-GAAP operating income rose 9.1% year-over-year to $3.78 billion.

Furthermore, KO’s non-GAAP net income and net income per share increased 10.5% and 11.4% from the prior-year quarter to $3.39 billion and $0.78, respectively. Also, as of June 30, 2023, KO’s total cash, cash equivalents, and short-term investments stood at $14.43 billion, compared to $10.56 billion as of December 31, 2022.

High Profitability

KO’s trailing-12-month EBITDA margin and net income margin of 31.27% and 23.81% are 173.6% and 492.1% higher than the industry averages of 11.43% and 4.02%, respectively.

Its trailing-12-month levered FCF margin of 21.09% is 519% higher than the industry average of 3.41%. Moreover, its trailing-12-month cash from operations of $11.10 billion is significantly higher than the $487.21 million industry average.

Favorable Analyst Estimates

For the fiscal year ending December 2023, KO’s revenue and EPS are expected to increase 4.6% and 6.4% year-over-year to $45.01 billion and $2.64, respectively. Also, for the fiscal year 2024, Street expects its revenue and EPS to come at $47.35 billion and $2.82, indicating increases of 5.2% and 7% year-over-year, respectively.

Furthermore, KO’s revenue and EPS for the fiscal third quarter ending September 2023 are expected to increase 3.1% and 1.1% year-over-year to $11.44 billion and $0.70, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

POWR Ratings Show Promise

KO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KO has an A grade for Quality, consistent with the higher-than-industry profitability.

KO has a B grade for Stability, consistent with its five-year beta of 0.54.

Also, KO’s B grade for Sentiment is evident from the favorable analyst estimates.

Within the Beverages industry, KO is ranked #13 out of the 38 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Value. Get all ratings of KO here.

Bottom Line

Despite economic volatility, defensive consumer stocks exhibit resilience, delivering robust performance. The beverage industry, in particular, benefits from steady demand that remains impervious to market downturns, thus providing a reliable revenue stream.

This sector's growth has been invigorated by a shift in consumer preference toward non-alcoholic categories driven by heightened health consciousness. The global beverages market is poised to reach $4.39 trillion by 2027, growing at a 4.7% CAGR.

KO is an attractive investment opportunity due to its robust profitability and optimistic analyst forecasts. Adding further credence to this stance is KO’s enviable dividend record. It has consistently raised its dividends for 60 consecutive years. The company is set to distribute a quarterly dividend of $0.46 per share on October 2, 2023.

It pays a $1.84 per share dividend annually, translating to a 3.04% yield on the current price level. The company’s dividend payouts have grown at 3.6% and 3.4% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 3.02%.

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

While KO has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Beverages industry: Coca-Cola HBC AG ADR (CCHGY), Coca-Cola Consolidated, Inc. (COKE), and Coca-Cola Femsa S.A.B. de C.V. ADR (KOF), with an A (Strong Buy) rating. For exploring more A and B-rated beverage stocks, click here.

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KO shares were trading at $60.34 per share on Thursday morning, down $0.13 (-0.21%). Year-to-date, KO has declined -3.69%, versus a 19.02% rise in the benchmark S&P 500 index during the same period.

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.

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