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Coca-Cola (KO US)

WEALTH FLASH - Coca-Cola (KO US) 250422
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We have been recommending Coca-Cola shares since 13 April 2020. Coke’s share price has been appreciating in 2022, even as most other stocks have faltered. Coke’s shares now look relatively expensive. We recommend taking a profit. Coke reports earnings after the close of business on Mon 25 April. A strong earnings report may boost the share price further, and result in a particularly attractive selling opportunity.

Coca-Cola is a defensive stock. We were not expecting world-beating returns when we recommended it. We are happy with the 48% return (21% annualized) produced since it has been on our recommendation list, even though it has underperformed the S&P 500 by 11% during that time. 

Defensive stocks are in vogue this year, and Coke has been outperforming. Coke shares are up 10% ytd, while most S&P 500 stocks are lower. As a result, Coke shares now look relatively expensive. 

Expensive valuations. Coke is trading at 26.6x FY22 forward earnings. On its last earnings call in Feb, Coke said it expecting comparable earnings per share growth of 5% to 6% for 2022. That is a relatively low rate of growth for a company trading at 26x forward earnings. 

Growth rates are not expected to improve. According to Bloomberg consensus data, FY22-24 revenue and earnings growth is only in the trajectory of mid-single digits. According to Fitch, Coke's revenue growth could remain muted in the low-single digits in 2023 before increasing to the mid-single digits in 2024. 

1Q results could beat. The Street expects the firm to post results that will beat the average estimates of $0.58 and post positive guidance for the next financial quarter. However, there are concerns that inflationary pressures could eat away