Source: PaxForex Premium Analytics Portal, Fundamental Insight
Coca-Cola shares have experienced a notable surge, rising by 9% in 2024 and achieving a 52-week high. The beverage giant has navigated through a turbulent period characterized by shifting consumer spending habits and inflationary pressures. Recent sales growth and earnings momentum indicate a more optimistic outlook.
The investment allure of Coca-Cola lies in its globally recognized brands. It’s challenging to find someone who doesn’t favor at least one product from Coca-Cola’s extensive lineup, which includes sodas, juices, water, sports drinks, milk, coffee, and tea, all available in over 200 countries.
Despite changing consumer tastes, recent data shows that Coca-Cola remains highly relevant, underscoring the company's continuous innovation and strategic execution. For the first quarter ending March 31, Coca-Cola reported net revenue of $11.3 billion, reflecting an 11% year-over-year increase on an organic basis.
Even with the recent rally, there are several reasons to remain positive about Coca-Cola's stock. Here’s why it might be a valuable addition to your investment portfolio.
While global unit case volume rose by only 1%, Coca-Cola's ability to implement price increases led to a 13% improvement in the average price mix globally. This change addresses high inflation and currency devaluations in specific markets, while also highlighting the company's strategic emphasis on premium categories through its franchised bottling partners.
This strategy's effectiveness is evident, as the comparable operating margin increased to 32.4% this quarter from 31.8% in Q1 2023. This metric has shown consistent improvement in each first quarter over the past four years, driving profitability higher. First-quarter comparable earnings per share (EPS) of $0.77 were up 7% from $0.68 in the same period last year.
Management expects continued growth in volume, revenue, and earnings throughout the year. Coca-Cola has revised its 2024 organic revenue growth forecast to between 8% and 9%, up from the previous 6% to 7%. The company also projects full-year comparable EPS growth of 4% to 5%, compared to $2.69 in 2023. These robust fundamentals and positive outlook make Coca-Cola an attractive investment.
The company's strong balance sheet, with a net debt leverage ratio of 1.6 times earnings before interest, taxes, depreciation, and amortization (EBITDA), is below its target range of 2 to 2.5 times. This financial strength underpins Coca-Cola's status as a Dividend King, having announced its 62nd consecutive annual dividend increase earlier this year. This streak is likely to continue, cementing Coca-Cola’s position as a leader in dividend growth. The current payout of $0.485 per share yields 3% on a forward basis, further enhancing the stock’s attractiveness.
Despite shares reaching new highs, Coca-Cola still represents good value. The combination of steady growth, increasing profitability margins, positive free cash flow, and reducing balance sheet debt supports a higher valuation. The stock trades at a forward price-to-earnings (P/E) ratio of 23 based on management's 2024 EPS guidance, which is below the five-year average valuation multiple of around 27, suggesting the stock may be undervalued.
Coca-Cola remains a compelling buy for long-term holding within a diversified portfolio. While the future may not be entirely smooth, the company is expected to continue generating positive returns.
As long as the price is above 61.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 63.49
- Take Profit 1: 65.00
- Take Profit 2: 67.00
Alternative scenario:
If the level of 61.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 61.00
- Take Profit 1: 59.00
- Take Profit 2: 57.00
