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Coca-Cola (KO) Earnings Analysis: Is Now the Time to Buy?

Coca-Cola (KO) just announced its first-quarter results, defying expectations with solid earnings. However, let us examine its performance, segment dynamics, and financial outlook to determine whether now is the opportune moment to buy into this beverage titan...

Beverage conglomerate The Coca-Cola Company (KO) announced its first-quarter results on April 30, 2024. While the company has shown resilience, some factors suggest caution before investing. So, in this article, I have discussed why it could be prudent to wait for a better entry point in the stock.

Despite a mere 1% increase in case volume, the company's earnings and revenue substantially outperformed Wall Street estimates in the fiscal first quarter.

In terms of segment performance, KO witnessed a robust 10% revenue surge in Latin America, while North America and the Asia Pacific each saw a commendable 7% growth. Global Ventures also experienced a modest 3% uptick. But, revenue faced a slight dip of 3% in EMEA and a more significant decline of 7% in Bottling Investments.

Backed by strong business momentum, the company revised its fiscal year 2024 revenue growth outlook to 8% to 9%, up from the previous forecast of 6% to 7%. However, the increased sales projection is primarily attributed to price hikes in inflationary markets rather than substantial business enhancements.

KO’s stock has gained 3.1% over the past three months but declined 3.7% over the past year to close the last trading session at $61.77.

Here’s what could influence KO’s performance in the upcoming months:

Contrasting Financials

KO’s net operating revenues for the fiscal first quarter ended March 29, 2024, increased 2.9% year-over-year to $11.30 billion. Its non-GAAP gross profit rose 4.7% over the prior-year quarter to $6.99 billion. Its non-GAAP net income increased 6.1% year-over-year to $3.12 billion.

However, its selling, general, and administrative expenses increased 5.2% from the prior-year quarter to $3.35 billion. Also, as of March 29, 2024, its cash and cash equivalents at the end of the period were $10.44 billion, down from $12 billion as of March 29, 2023.

Mixed Analyst Estimates

Analysts expect KO’s EPS to rise 4.6% year-over-year to $2.81 in the fiscal year 2024 and 3.1% year-over-year to $0.80 in the current quarter ending June 2024.

Nonetheless, its revenue is likely to fall marginally from the prior-year to $45.65 billion in 2024 and $11.87 billion in the current quarter.

Robust Profitability

KO's trailing-12-month net income margin of 23.42% is 408.9% higher than the 4.60% industry average. Its 31.56% trailing-12-month EBITDA margin is 154% higher than the industry average of 12.40%. Furthermore, the stock’s 59.52% trailing-12-month gross profit margin is 69.3% higher than the industry average of 35.17%.

Stretched Valuation

In terms of forward EV/Sales, KO’s 6.54x is 293.4% higher than the 1.66x industry average. Its 5.83x forward P/S is 383.6% higher than the 1.21x industry average. Its forward non-GAAP P/E multiple of 21.94 is 23.5% higher than the 17.76 industry average.

POWR Ratings Reflect Uncertainty

KO has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. KO has a C grade for Growth, which is justified by its mixed first-quarter performance. Moreover, its C grade in Momentum is in sync with its fluctuating price performance.

KO is ranked #16 out of 33 stocks in the Beverages industry.

Click here to access KO’s Value, Stability, Sentiment, and Quality ratings.

Bottom Line

Although KO raised its fiscal year 2024 outlook, attributing increased revenue projections to price hikes in inflationary markets, how this will impact its overall performance remains to be seen.

Given KO's mixed financials and a valuation that appears stretched relative to industry peers, investors may want to wait for a more opportune entry point in the stock.

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

While the chances of KO outperforming in the near time are uncertain, you may check out the stocks within the Beverages industry possessing an A (Strong Buy) rating: Embotelladora Andina S.A. (AKO.B), Kirin Holdings Co. Ltd. ADR (KNBWY), and Suntory Beverage & Food Limited (STBFY).

To access more Buy-rated Beverage stocks set to outperform, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

KO shares were unchanged in premarket trading Wednesday. Year-to-date, KO has gained 5.71%, versus a 5.59% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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