Coca-Cola (NYSE: KO) will report its Q3 2023 results on Tuesday, October 24. We expect the company’s revenues to come in at $11.5 billion, marginally above the consensus estimate of $11.4 billion. This would mark year-over-year growth of about 9%. Earnings will likely come in at about $0.70 on a per-share and adjusted basis, slightly above the consensus estimate of $0.69. See our interactive dashboard analysis on Coca-Cola Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive Coca-Cola’s results, and how has the company’s stock performed?
KO stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $55 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Overall, the performance of KO stock with respect to the index has been quite volatile. Returns for the stock were 8% in 2021, 7% in 2022, and -15% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 12% in 2023 (YTD) – indicating that KO underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could KO face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? Going by our Coca-Cola valuation of $67 per share, there seems to be ample room for growth from its current level of $54. Our forecast is based on a 26x P/E multiple for KO and expected earnings of $2.63 per share for the full year 2023. This 26x P/E ratio compares with the stock’s last four-year average of 25x. The challenging macroeconomic environment and higher inflation remain potential risk factors for realizing these gains.
The company will likely continue to benefit from pricing actions resulting in growth for both at-home and away-from-home channels, primarily in North America. However, there have been rising concerns that the company can’t rely on price increases to drive long-term revenue growth. PepsiCo has benefited from a pricing strategy around its smaller-sized packaging. Earlier this week, Coca-Cola and Pernod Ricard announced their plan to launch a ready-to-drink pre-mixed Absolut Vodka & Sprite cocktail in 2024. The company is looking forward to expanding its presence in the ready-to-drink alcohol market.
Looking at Q2 2023, Coca-Cola’s revenues were up 6% while the organic revenue growth rate was 11%, led by a 10% rise in price/mix and a 1% growth in concentrate sales, and this trend is expected to continue in the near term. The North America segment saw 8% sales growth in Q2, while Latin America rose 21%. The company’s adjusted operating margins were up by 30 bps in Q2, partly due to the impact of the company’s refranchising of bottling operations. Higher revenues and margin expansion resulted in the earnings of $0.78 on a per share and adjusted basis were up 11% from $0.70 in the prior-year quarter.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
While Coca-Cola stock looks appropriately priced, check out how Coca-Cola Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||1%||12%||93%|
|Trefis Reinforced Value Portfolio||0%||23%||536%|
 Month-to-date and year-to-date as of 10/19/2023
 Cumulative total returns since the end of 2016