Should You Pick Coca-Cola Stock At $60 After Q4 Beat?

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KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

Coca-Cola (NYSE: KO) reported its Q4 results earlier this week, with revenues above and earnings aligning with the street estimates. The company reported revenue of $10.85 billion and earnings of $0.49 on a per-share and adjusted basis, compared to the consensus estimate of $10.68 billion and $0.49, respectively. There are near-term concerns for the company with tepid volume growth amid higher inflation impacting consumer spending. We believe that KO stock has little room for growth from its current level of around $60. In this note, we discuss Coca-Cola’s stock performance, key takeaways from its recent results, and valuation.

KO stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $60 now, vs. an increase of about 30% for the S&P 500 over this roughly three-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 -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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? From a valuation perspective, KO stock looks like it has little room for growth. We estimate Coca-Cola’s Valuation to be $65 per share, reflecting only a 9% upside. Our forecast is based on a 23x P/E multiple for KO and expected earnings of $2.85 on a per-share and adjusted basis for the full year 2024. The 23x P/E multiple aligns with the average value over the last four years.

Coca-Cola’s revenue of $10.8 billion in Q4 was up 7% y-o-y. Sales were up 12% organically, led by a 9% rise in price/mix and a 3% growth in concentrate sales. While the overall unit case volume was up 2% in Q4, the North America segment volume was down 1%, weighed down by higher inflation and a shift in consumer spending behavior. This performance for Coca-Cola fares better than PepsiCo, which reported a 6% fall in North American beverage volume in Q4. Coca-Cola saw its adjusted operating margin expand 40 bps y-o-y to 23.1% in Q4, vs. 22.7% in the year-ago period. Higher revenues and margin expansion resulted in a 10% rise in the bottom line to $0.49 per share on an adjusted basis. Looking forward, Coca-Cola expects its organic revenue growth to be between 6% and 7% and adjusted EPS to rise between 4% and 5% in 2024.

While KO stock looks like it has little room for growth, it is helpful to see how Coca-Cola’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 KO Return 0% -7% 43%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 3% 42% 627%

[1] Returns as of 2/15/2024
[2] Cumulative total returns since the end of 2016

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