After A Gloomy Earnings Projection Last Year, Can Coca-Cola Spring A Surprise In Its 2019 Results?

by Trefis Team
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Coca-Cola (NYSE: KO) is slated to release its Q4 and full-year 2019 results on January 30, 2020. Trefis details expectations from the company in an interactive dashboard, parts of which are highlighted below. We believe that though Coca-Cola’s revenues are expected to miss consensus marginally, earnings coming in slightly better than expectations could result in Coca-Cola’s stock price remaining largely stable post earnings announcement. We expect Coca-Cola to report revenue of $37.0 billion (vs. consensus estimate of $37.1 billion), which would be 16.1% higher than 2018, primarily due to higher demand for sports and energy drinks, along with acquisition benefits. Adjusted earnings are expected to come in at $2.11 (vs. consensus estimate of $2.10), which would be 1.2% higher than $2.08 reported in 2018, due to healthy revenue growth, though faster growth in expenses is likely to push net income margin downward. We believe that revenues and earnings for 2019 coming almost in line with market expectations will likely help in avoiding any wide fluctuation in Coca-Cola’s stock price. In fact, our forecast indicates that Coca-Cola’s Valuation is $57 a share, which is in line with its current price of roughly $57.

A] Revenue To Marginally Miss Consensus

  • Total revenues have decreased at an average annual rate of 12.8% over the previous two reported years, with the revenue base shrinking by $10 billion between 2016 and 2018, primarily due to refranchising (selling or converting company owned units into franchises) of its bottling business, which is a high-revenue-low-margin business.
  • Trefis estimates Coca-Cola’s revenues to be $37.0 billion in 2019, marking a y-o-y growth of 16.1%.
  • Higher revenue is mainly to be driven by higher demand for energy and sports drinks across geographies, along with inorganic growth strategies of Coca-Cola, with the company announcing several key acquisitions in 2018, including Costa Limited (completed in Q1 2019) and a strategic partnership with BODYARMOR. Additionally, it also announced the acquisition of full ownership in Chi Ltd, which is a fast-growing leader in expanding beverage categories, including juices, value-added dairy, and iced tea in Nigeria.
  • We expect Coca-Cola’s revenue growth rate to improve significantly from -10% in 2018 to 16.1% in 2019 followed by a lower growth rate of 4.3% in 2020, mainly due to a higher base to be achieved in 2019.

Our interactive dashboard analysis, Coca-Cola Revenues: How Does Coca-Cola Make Money?, provides an in depth view of the company’s revenues along with segment-wise forecasts for 2020.

B] EPS To Marginally Exceed Consensus

  • Coca-Cola’s 2019 earnings per share (EPS) is expected to be $3.06 per Trefis analysis, slightly behind consensus estimate of $3.09 per share.
  • An increase in revenues as detailed above, partially offset by higher growth in expense level and stable share count, will drive EPS growth.
  • As we forecast Coca-Cola’s Revenues to grow at a slower rate than Expenses in 2019 (16% vs. 22%), this will result in a decrease in Coca-Cola’s Net Income Margin figure from 28.1% in 2018 to 24.5% in 2019.
  • For 2020, we forecast a modest growth in revenue and expenses, though the rise in revenue is expected to be faster than expenses benefiting from acquisitions and more focus on energy drinks, and with most of the refranchising of low-margin bottling plants already done. This is expected to drive adjusted net income margin slightly higher to about 25.5%.

C] Stock Price Estimate In Line With Market

  • A trailing P/E multiple of 27.0x looks appropriate for Coca-Cola’s stock, largely in line with the current implied P/E multiple of 27.1x
  • Though Trefis’ forecast for Coca-Cola’s 2019 earnings is marginally higher than consensus, its estimate for the P/E multiple is slightly lower than market expectations, working out to a fair value of $57 for Coca-Cola’s stock, in line with the current market price of around $57.

Additionally, you can input your estimates for Coca-Cola’s key metrics in our interactive dashboard for the company’s pre-earnings, and see how that will affect the Coca-Cola’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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