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Time to Buy Coca-Cola (KO) Stock Near New All-Time High?

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Coca-Cola (KO - Free Report) shares jumped to a new all-time high Monday as the larger market sunk on the back of declines from Apple (AAPL - Free Report) , Microsoft (MSFT - Free Report) , and other giants. Coca-Cola is coming off an encouraging third quarter that saw its traditional soda and Diet Coke businesses perform well. But the question is should investors consider buying Coca-Cola stock with its shares up 11% over the last month alone?

Q3 Overview

Coca-Cola’s adjusted third-quarter earnings popped 14% to $0.58 per share, which beat our $0.55 per share estimate. Plus, the beverage giant’s global soda volume grew by 2% from the same quarter a year ago, driven by demand for Diet Coke and Coke Zero Sugar. Investors should note that the firm revamped its Diet Coke packaging and launched new flavors in January 2018. 

Meanwhile, organic revenue, which excluded acquisitions, divestitures, and currency fluctuations, popped 6% from the year-ago period. Overall company revenues slipped 9% to $8.25 billion, which was driven by the refranchising of Coca-Cola-owned bottling operations.

Looking ahead, the company reaffirmed its fiscal 2018 guidance of at least 4% organic revenue growth.

Price Movement

As we mentioned at the top, KO stock has surged recently, up roughly 11% in the last month. Shares of Coca-Cola have also climbed 19% over the last six months. With that said, KO stock is up roughly 7% in the last year, which crushed its industry’s 6% decline. Rival PepsiCo (PEP - Free Report) stock popped nearly 3% during this same stretch.

We can, however, see from the chart that Coca-Cola stock has lagged the S&P 500 over the five years. Still, shares of KO hit a 52-week and all-time high of $50.24 per share Monday. KO closed regular trading at $49.87 per share.

 

Valuation

Moving on, KO is currently trading at 22.7X forward 12-month Zacks Consensus EPS estimates, which marks a premium compared to the S&P’s 16.6X and its industry’s 21.3X average. KO stock has traded as high as 24.2X over the last year, with a one-year median of 21X.

With that said, Coke stock is currently trading above its five-year low of 16.7X and its five-year median of 20.8X. Clearly, KO’s valuation picture has been better recently, but it does not appear that stretched at the moment. 

 

 

Outlook & Industry Overview

Coca-Cola Zero Sugar saw double-digit volume growth in Q3. The Atlanta-based company also noted that some of its other non-soda brands like Fuze Tea and smartwater performed well. Going forward, the company could get a boost from its recent investment in sports drink upstart and potential Gatorade rival BodyArmor. Plus, Coca-Cola is set to purchase UK coffee giant Costa for $5.1 billion to further expand its portfolio beyond sugary drinks.

The company’s acquisition, which it expects to close in the first half of 2019, will give the company a solid retail presence outside of the U.S. Costa currently boasts roughly 4,000 cafes, with about 2,500 in the UK. The company also sells coffee in gas stations and grocery stores and is expanding in China.

The purchase could help Coca-Cola take on Starbucks (SBUX - Free Report) , Dunkin' , and others. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand,” CEO James Quincey said in a statement. “Costa gives us access to this market with a strong coffee platform.”

The company’s recent moves highlight the need to expand beyond soda and also follows PepsiCo’s SodaStream purchase. This summer, Dr. Pepper Snapple and Keurig Green Mountain merged to form Keurig Dr. Pepper Inc. (KDP - Free Report) .

Q4 Projections & Earnings Trends

Looking ahead, Coke’s Q4 revenues are projected to slip by 6.1% to hit $7.06 billion, based on our current Zacks Consensus Estimate. The company’s full-year revenues are projected to fall by 10.04% to reach $31.86 billion. But we should remember that KO stock isn’t likely to trade based on its overall GAAP top line growth.

Luckily for investors, KO’s adjusted quarterly earnings are projected to pop 7.7% to touch $0.42 per share. Meanwhile, its adjusted full-year earnings are expected jump by 8.9%. We should note that Coca-Cola has experienced mixed earnings estimate revision activity over the last 30 days, with its full-year earnings trending upward and Q4 headed down. 

 

 

Bottom Line

Coca-Cola is currently a Zacks Rank #3 (Hold) based on its earnings estimate revision activity. But KO rarely misses quarterly earnings estimates. And we can’t forget, especially amid market uncertainty, that Coca-Cola is a dividend payer that has raised its dividend each of the last 55 years. The firm has paid a $0.39 per share dividend in 2018, up from $0.37 in 2017.

Therefore, KO stock might be one to consider even near its new high as it continues to climb upward on the back of strong momentum.

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