Is Coca-Cola (KO) the Beverage Stock to Buy for June? Beverage giant Coca-Cola (KO) posted better-than-expected top and bottom-line results for the first quarter of fiscal 2023. Furthermore, the company is positioned for robust long-term growth, driven by high demand...
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Beverage giant Coca-Cola (KO) posted better-than-expected top and bottom-line results for the first quarter of fiscal 2023. Furthermore, the company is positioned for robust long-term growth, driven by high demand for its innovative product portfolio. So, let's find out if this iconic beverage brand emerges as a tempting buy this month. Read more….
Leading beverage company The Coca-Cola Company (KO) reported first-quarter revenue and earnings that surpassed analysts' estimates, driven by price hikes and strong demand for its products. Moreover, the company continues to pursue strategic collaborations and initiatives to innovate its product portfolio.
Given KO's strong fundamentals, reliable dividend, and promising growth outlook, this top beverage stock is worth owning this month. In this piece, I will discuss why I am bullish on KO.
With a $261.42 billion market cap, KO is a household name in the beverage industry, operating in more than 200 countries. With an extensive network of 225 bottling partners and 900 bottling plants, it offers an impressive array of brands such as Coca-Cola, Sprite, Fanta, Ayataka, Gold Peak, Del Valle, fairlife, Minute Maid, and more.
KO reported first-quarter results that beat analysts' expectations, mainly driven by higher prices and strong demand for its drinks. The company posted revenue of $10.96 billion, exceeding the consensus revenue estimate of $10.80 billion, while its adjusted EPS came in at $0.68, higher than analysts' estimates of $0.64.
On March 7, vitaminwater®, a KO brand, unveiled two new flavors, "with love' and "forever you,' as additions to its zero-sugar product range. Additionally, the company introduced an inventive reformulation for all six zero-sugar flavors, incorporating its latest sweetener formula enriched with monk fruit, stevia, and additional vitamins and nutrients.
The new launches could expand the company's customer reach, boost its revenue streams, and enhance its product portfolio.
James Quincey, Chairman and CEO of KO, said, "Our system alignment is stronger than ever, and our networked organization is allowing us to adapt as needed. We continue to invest for the long term, strengthening our capabilities to drive sustainable value for our stakeholders."
Shares of KO have gained 1.1% over the past three months to close its last trading session at $60.45.
Here is what could shape KO's performance in the near term:
Robust Financials
For the first quarter that ended March 31, 2023, KO's non-GAAP net operating revenues increased 4.4% year-over-year to $10.96 billion, while its non-GAAP gross profit rose 6.5% from the year-ago value to $6.68 billion. The company's non-GAAP operating income rose 5.6% year-over-year to $3.49 billion.
Furthermore, KO's net income increased 5.2% from the prior year's period to $2.94 billion. Its non-GAAP EPS grew 6.3% year-over-year to $0.68. Also, as of March 31, 2023, KO's cash, cash equivalents, and short-term investments stood at $13.17 billion, compared to $10.56 billion as of December 31, 2022.
Favorable Analyst Estimates
Analysts expect KO's revenue to increase 4.4% year-over-year to $44.96 billion for the fiscal year ending December 2023. The company's EPS for the current year is expected to rise 5.1% from the previous year to $2.61. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
In addition, KO's revenue and EPS for the fiscal year 2024 are expected to grow 5.5% and 7.9% from the prior year to $47.42 billion and $2.81, respectively.
Attractive Dividend
KO has a record of increasing its dividends for 60 consecutive years. It pays a $1.84 per share dividend annually, translating to a 3.04% yield on the current price level. The company's dividend payouts have grown at a 3.5% CAGR over the past five years, and its four-year average dividend yield is 3.02%.
High Profitability
KO's trailing-12-month gross profit margin of 58.09% is 85.5% higher than the industry average of 31.32%. Also, its trailing-12-month EBITDA margin and net income margin of 30.94% and 22.69% are 214.3% and 644.9% higher than the industry averages of 9.85% and 3.05%, respectively.
Moreover, its trailing-12-month levered FCF margin of 21% is 615.7% higher than the 2.93% industry average. In addition, the stock's trailing-12-month ROCE, ROTC, and ROTA of 39.42%, 10.95%, and 10.13% compare to the respective industry averages of 10.17%, 6.29%, and 4.10%.
POWR Ratings Show Promise
KO's robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. KO has a B grade for Stability, consistent with its 24-month beta of 0.57. It also has a B grade for Quality, in sync with its higher-than-industry profitability.
KO is ranked #15 in the 37-stock A-rated Beverages industry. Click here to access KO's Growth, Momentum, Value, and Sentiment ratings.
View all the top stocks in the Beverages industry here.
Bottom Line
KO's first-quarter 2023 revenue and earnings beat analysts' estimates. Furthermore, the company is expected to maintain its business momentum, driven by the sustained demand for its innovative and premium product line.
Given its strong financial performance, bright growth prospects, high profitability, and attractive dividend, KO could be an ideal addition to your portfolio for June.
How Does The Coca-Cola Company (KO) Stack Up Against Its Peers?
While KO has an overall POWR Rating of B, equating to Buy, one could also check out other stocks within the Beverages industry that are overall A (Strong Buy) rated: Kirin Holdings Co. Ltd. ADR (KNBWY), Suntory Beverage & Food Ltd (STBFY), Primo Water Corporation (PRMW).
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these "death trap" stocks are lurking in your portfolio:
KO shares rose $0.14 (+0.23%) in premarket trading Wednesday. Year-to-date, KO has declined -4.08%, versus a 14.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program.She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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