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