Source: PaxForex Premium Analytics Portal, Fundamental Insight
If you think Coca-Cola is already ubiquitous on supermarket shelves around the world, the company happily proved you wrong last week by releasing a stunning Q1 earnings report. The 16% YoY sales growth was a further recovery from the pandemic downturn after 5% growth last year. However, for the remainder of 2022, the company will have to surpass last year's numbers.
Let's try to find out if the beverage titan can keep its impetus till the end of 2022.
Coca-Cola's sales plummeted during the pandemic, and management has restructured to adjust to the new reality. While sales probably would have recuperated anyway, the company has evolved into a lean, efficient company with a clear focus on its unrivaled global distribution system. This has definitely helped the company stay on top of its game as the largest beverage business.
In the first quarter, sales increased above 2019 levels to $10.5 billion, up 16% from a year ago, and organic sales (or sales from existing products) were up 18%. Part of Coca-Cola's restructuring in 2020 included cutting 200 brands, or about half of the total, from its product line. These were mainly small, local brands with resources that could be more effectively leveraged elsewhere. Meanwhile, the business's center brands were performing well.
These actions also allowed enhanced margins. Operating margins rose more than two percentage points, from 30.2% last year to 32.5% this year, and earnings per share (EPS) rose 23% to $0.64. Earnings per share beat analysts' average consensus forecast of $0.58 by 15%.
The company expects there will be some impact from discontinuing operations in Russia, but still forecasts organic revenue growth of 7-8% YoY in fiscal 2022.
The company certainly has a strong place in the minds of consumers, and it has a strong marketing program to maintain that position. The company recently launched a "Magic Weekend" campaign, part of its "Real Magic" platform, to further engage consumers. The company has also begun to embrace digital, offering direct-to-consumer sales and partnering with DoorDash for home delivery.
But regardless of its ubiquitous popularity, at least in most North American markets, the company still sees plenty of room for growth. Coke says it has a 14% share in developed markets, but only 6% in undeveloped markets, where 80% of the population lives.
Coca-Cola stock probably doesn't have huge growth potential, but 19 of 27 analysts recommend buying it, including five who give it an "outperform" rating.
There are two arguments to add KO stock to your portfolio. The first is its safety. At a time when the market is volatile and growth stocks are struggling, investors feel their money is safe in a company like Coca-Cola. Over the years, it has posted consistent earnings, even if they aren't as high as riskier stocks -- and that's the point. The business has already shown its strength and strong rebound, and even if the rest of the year is more challenging, investors have no doubts about Coca-Cola's ability to maintain strong earnings over the long term.
Another reason to hold Coca-Cola stock is the dividend. The company is the Dividend King, having raised its dividend every year for the past 60 years. Its dividend yields 2.58% at the current price, even though the company usually prefers to keep it at 3%.
Coca-Cola is a win-win that provides security and income in volatile times and at all times.
As long as the price is above the 63.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 63.35
- Take Profit 1: 67.00
- Take Profit 2: 69.00
Alternative scenario:
If the level of 63.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 63.00
- Take Profit 1: 61.00
- Take Profit 2: 59.00
