What’s Next For Coca-Cola Stock After An Upbeat Q1?

+10.30%
Upside
58.75
Market
64.80
Trefis
KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

Coca-Cola stock (NYSE: KO) is up 1% in a month, faring slightly better than the broader markets, with the S&P500 down 1%. Although the company posted upbeat Q1 results last week, we believe KO stock is fully valued. Coca-Cola revenues were up 5% to $11 billion in Q1’23, compared to our forecast of $10.8 billion. Sales growth was led by an 8% rise in price/mix and 3% volume gains, and this trend is expected to continue in the near term. For Coca-Cola, both at-home and away-from-home channels have grown. North America and EMEA segments saw double-digit sales growth in Q1, while Latin America was up in high single-digits, led by both volume growth and better price realization.

The company’s adjusted operating margins were up 40 bps in Q1, partly due to the impact of the company’s refranchising of bottling operations. On a reported basis, the operating margin declined 170 bps due to currency headwinds. Our Coca-Cola Operating Income Comparison dashboard has more details. The earnings of $0.68 on a per share and adjusted basis were up 5% from $0.64 in the prior-year quarter, and this compares with our estimate of $0.64. Coca-Cola also reaffirmed its full-year outlook. It expects its organic sales growth to be between 7% and 8% and adjusted earnings to rise in the mid-single digits.

Looking at valuation, we estimate Coca-Cola’s Valuation to be $62 per share, slightly below its current market price of $64. At its current levels, KO stock is trading at 24x the forward earnings estimate of $2.63, aligning with its last three-year average of 24x, implying that the stock is now fully valued.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Coca-Cola vs. Footlocker.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 KO Return -1% 0% 54%
 S&P 500 Return -3% 6% 81%
 Trefis Multi-Strategy Portfolio -3% 6% 232%

[1] Month-to-date and year-to-date as of 5/5/2023
[2] Cumulative total returns since the end of 2016

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