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Coca-Cola (KO) to Report Q2 Earnings Tuesday: Should You Buy?

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Coca-Cola Company (KO - Free Report) stock was down 0.53% in trading Thursday. The stock currently sits less than a percent below its 52-week high.

KO is set to report its Q2 2019 earnings before the market opens on Tuesday. Let’s look at what to expect from Coca-Cola’s upcoming financial results and beyond to see investors should consider buying KO stock.

Overview

Coca-Cola’s brand is currently ranked as the 6th most valuable brand in the world by Forbes, with an estimated brand value of $59.2 billion. The company as a whole has products under many brands other than Coca-Cola, such as Dasani, Minute Maid, Vitamin Water, Sprite, and many others. KO also owns a 16.7% stake in Monster Energy (MNST - Free Report) .

Last August, Coca-Cola bought Costa Coffee from Whitbread PLC. The deal was worth $4.9 billion and gave KO full control of the company. Costa was designed as a scalable, multi-platform company to be able to reach customers quickly and in a variety of ways. The global coffee market is also growing at about 6% annually, leaving KO an opportunity to capitalize and increase its coffee market share to try to better compete with the likes of Starbucks (SBUX - Free Report) .

KO also last August, purchased a minority stake in the premium sports hydration drink manufacturer Body Armor. The financial terms of the deal were not released, but KO has the option to further increase its ownership stake in the future. This is an effort by Coca-Cola to diversify its drink portfolio even further and capture new trends in consumer drinks.

Outlook

The last five years have been rough for Coca-Cola, with quarterly revenue down year over year every quarter from Q2 2015 to 2018 Q4. However, the company has posted positive quarterly EPS growth since 2017 Q3 and saw its Q1 2019 revenue jump 5.2%.

Coca-Cola has been struggling, in part, due to a declining U.S. soda market.  Its recent diversification is an attempt to make the company a total beverage provider, with offerings in all sectors across the drink market. This way, KO will be more immune to changing trends in consumer choice.

Looking ahead, KO’s sales growth estimates are extremely strong for such a mature company, especially in the consumer goods segment. This is likely in part due to KO’s aggressive diversification. Second-quarter sales growth is projected at 8.83%, with current year revenues expected to jump 12%, based on our Zacks Consensus Estimates.

Earnings growth estimates are not as strong, with adjusted Q2 earnings projected to increase just $0.01, for a 1.64% jump over Q2 2018. Earnings for this year are projected to climb just 0.48%. With that said, KO has met or beat earnings estimates every quarter since 2012, with an average beat of 2.87% over the past 4 quarters. So, it would not be unreasonable to expect Coca-Cola’s earnings growth to be slightly higher than predicted.

Despite its recent history of earnings beats, KO’s earnings estimate revisions have moved in the wrong direction recently, especially for Q2.

Other Fundamentals

In comparison to the market, KO has under-performed by 8.2% YTD. It has also lagged its peer group, which includes Pepsi (PEP - Free Report) and Keurig Dr. Pepper (KDP - Free Report) , by 6.5%. Meanwhile, KO is currently trading at a forward P/E ratio of 23.89x, roughly similar to its peer group’s 23.27x and the broader beverage industry’s 23.32.

Bottom Line

Coca-Cola’s recent earnings revision trends help it hold a Zacks Rank #4 (Sell). On the other hand, KO does have a current dividend yield of 3.07%. This may not be the most attractive stock for investors, due to earnings estimate revisions and its recent sales history. However, Coca-Cola has shown a commitment to diversifying to other drink segments to help create a future with more stable demand. 

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