Why Is Coca-Cola’s Stock Likely To Underperform The Market Post Coronavirus?

by Trefis Team
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Coca-Cola’s (NYSE: KO) stock is likely to underperform the broader S&P 500 index post coronavirus and oil price war crisis, going by the trends seen during the 2008 slowdown, where it fell 27% from the approximate pre-crisis peak in 2008, and recovered 44% by early 2010. The decline in Coca-Cola’s stock and recovery was lower than that of the S&P 500.

On Monday, March 9, the stock markets saw their biggest sell off since the 2008 crisis, with the decline continuing throughout the week. There were two distinct trends driving the sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production. Coca-Cola’s stock fell 11.5% between 8th March and 13th March 2020, and is down by a total of 16% since early February, considering the impact that the outbreak and a broader economic slowdown could have on total consumption/consumer spending and the global food and beverage industry.

Moreover, about 15% of Coca-Cola’s total revenue comes from the Asia Pacific region, which has been the worst impacted by the outbreak. Lower consumer spending and consumption would lead to lower demand for food and beverages, in turn affecting Coca-Cola’s revenues. However, the majority of the company’s revenue is contributed by geographies that are not severely affected by the virus, leading to a decline in stock price that is lower than the decline in the broader market. Also, going by the trends seen during the 2008 economic slowdown, it’s likely that Coca-Cola’s stock could bounce back strongly but potentially underperform the market as the crisis winds down, as the stock decline was not as great as that of the market in the first place, leading to a smaller rebound for the stock.

Below we discuss how the company’s stock reacted to the economic crisis of 2008 and compare its performance with the S&P 500. View our complete dashboard analysis 2007-08 vs. 2020 Crisis Comparison: How Did Coca-Cola Stock Fare Compared With S&P 500?

Coca-Cola Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

  • Coca-Cola’s stock declined by about 11.5% between 8th March 2020 and 13th March 2020, and the stock is down by about 16% since February 1, after the WHO declared a global health emergency.
  • The S&P 500 declined by 9% between 8th March 2020 and 13th March 2020, and has fallen by 19% since February 1, after the global health emergency was declared by the WHO.
  • We also compare the current coronavirus crash to 4 other market crashes here.

Coca-Cola versus the S&P 500 During 2007-08 Financial Crisis

  • KO stock declined from levels of around $20 in October 2007 (the pre-crisis peak) to levels of around $14 in March 2009 (as the markets bottomed out) and recovered to levels of about $21 in early 2010.
  • Through the crisis, KO stock declined by as much as 27% from its approximate pre-crisis peak. This marked a lower decline than the S&P which fell by as much as 51%.
  • However, the stock recovered strongly, rising by 44% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.

Conclusion

While Coca-Cola’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly but potentially underperform the broader market as the crisis winds down.

For more detailed charts and a timeline of the 2008 and 2020 crisis for different stocks, view our interactive dashboard analyses on coronavirus.

 

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