After a 5% rise year-to-date, at the current price of around $62 per share, we believe Coca-Cola stock (NYSE: KO) has only a limited upside. KO stock rose from about $59 in early January to $62 now. The 5% move for KO so far this year compares with -6% returns for the broader S&P500 index. Looking at the longer term, KO stock is up 32% from levels of $47 seen in late 2018. This marks a significant underperformance compared to its peers and the broader markets, with Pepsi stock rising over 50% and the S&P 500 index rising 80% over the same period. Our dashboard – Why Coca-Cola (KO) Stock Moved – provides more details on the factors behind this move over the last three years.
Now, much of this rise over the last three years was driven by the company’s P/S ratio, which rose from 6.0x in 2018 to 7.1x currently. Coca-Cola’s revenue increased 13% to $39 billion in 2021, compared to $34 billion in 2018. The pandemic-induced lockdowns resulted in lower revenues in 2020. Although its top line declined 11% to $33.0 billion in 2020, it saw a sharp rebound of 17% to $38.7 billion in 2021. This compares with the $37.3 billion sales Coca-Cola garnered in 2019, before the pandemic. The total outstanding shares also increased to 4.4 billion, compared to 4.3 billion in 2018. This meant that revenue per share rose 11% to $8.94 in 2021, vs. $8.05 in 2018.
With economic growth picking up pace, Coca-Cola is expected to see higher sales over the coming years. With the rise in the number of social events, restaurants back to full-scale operations, and more importantly, people venturing out will aid beverage sales in the near term. The company’s management expects its sales to grow in the mid-single digits over the coming years. This clubbed with expected operating margin expansion; the company can look forward to steady earnings growth.
Coca-Cola, its peer Pepsi, and several other companies have suspended their operations in Russia. While the company doesn’t provide a breakup of revenue from Russia, they are likely to be insignificant. We estimate Coca-Cola’s valuation to be $66 per share, which is only 6% above its current market price of $62. This represents a forward P/E multiple of 27x based on expected EPS of $2.45 for Coca-Cola in 2022.
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|S&P 500 Return||0%||-5%||102%|
|Trefis MS Portfolio Return||1%||-7%||266%|
 Month-to-date and year-to-date as of 4/6/2022
 Cumulative total returns since the end of 2016