Source: PaxForex Premium Analytics Portal, Fundamental Insight
The Coca-Cola Company recently gave investors some new reasons to be optimistic about its fiscal year 2023. The company ended 2022 with a strong performance, with sales accelerating and profitability remaining flat.
Management is also predicting big growth in revenue and profits next year. Let's take a closer look at how these trends could bring solid returns to the company's shareholders in 2023.
Coca-Cola has handled rising costs as well as Wall Street expected. The company doubled prices across most of its portfolio, which put pressure on volumes. In addition, the company saw a 1% decline in volumes globally. However, higher prices and relatively stable volume momentum led to rapid growth.
Organic sales were up 15% in Q4, which ended in late December. "We are proud of our overall results in a dynamic operating environment," CEO James Quincey said in a press release. Coke also gained market share during this period, which means excellent momentum through 2023.
Coke's financial performance has also been brilliant. Of course, the cash flow dynamics have worsened compared to the impressive 2021 results. Coca-Cola generated $11 billion in cash from operations, down from nearly $13 billion. But this decline is mostly due to management's decision to buy more raw materials as prices began to rise. Management predicts an increase in free cash flow in 2023.
Coke's operating profit margin has remained at 28 percent of sales, making it stand out against competitors like PepsiCo and many others in its industry and beyond.
It is the combination of high sales growth and high margins that makes Coke such a powerful financial powerhouse. Last year, pre-tax earnings were $11.7 billion on revenue of $43 billion.
Coke's short-term outlook is bright enough to suggest that its shareholders will make a better-than-market profit this year. After last year's lightning-fast 16% growth, organic sales trends are likely to slow slightly to between 7% and 8%. By comparison, PepsiCo predicts a growth of 6%.
The company also plans to improve its already impressive profit margin, as non-GAAP earnings should be up 7-9% this year. Add to that a growing dividend, and the outlook for total shareholder return in the double-digit range is very bright.
As you might expect, you'll have to pay a premium to own the company's stock today. Coca-Cola is valued at more than 6 times its annual earnings, which is about twice the price-to-sales ratio of PepsiCo.
Nevertheless, investors can still make excellent returns by owning these major consumer stocks. Coke stands a good chance of seeing an acceleration in sales and earnings growth in 2023 if economic growth trends stabilize or recover.
Shareholders are also unlikely to see a significant decline in a worsening sales environment, as evidenced by the fact that Coke was able to raise prices significantly in 2022 without a significant decline in shipment volumes.
Sure, you can find faster sales and profit growth from smaller companies in less mature industries. But Coke offers a compelling combination of stability, dividend income, and sales growth that is hard to match. These assets should help the stock outperform the market over the long term, including potentially strong performance in 2023.
As long as the price is above 59.00, follow the recommendations below:
- Time frame: D1
- Recommendation:long position
- Entry point: 59.74
- Take Profit 1: 61.00
- Take Profit 2: 63.00
Alternative scenario:
If the level of 59.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 59.00
- Take Profit 1: 58.00
- Take Profit 2: 57.00
