With shares of The Coca-Cola Company (NYSE:KO) at around $37.56, is KO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
The didn’t respond well to the Q4 earnings report yesterday, but should that be looked at as an opportunity? Let’s take a look at the basics first. Q4 EPS came in at $0.41. This was stronger than Q4 2011 EPS of $0.36. Profits rose as more drinks were sold overseas. Q4 revenue came in at $11.46 billion, which was a 4 percent increase year-over-year. FY2012 EPS was $1.97, which was an improvement over $1.85 in FY2011.
North America and Europe soda volume declined due to fewer soda drinkers. Soda sales volume in North America dropped 2 percent. This will be covered further in the Trends section. Overall sales volume also declined in Europe. However, Coca-Cola expects a rebound in Europe. The good news is that North America sales volume (not just soda) increased 1 percent. This was mostly due to Powerade and bottled tea.
Another factor that has the potential to impact sales in the future is that PepsiCo (NYSE:PEP) has stepped up its game. For instance, Pepsi is now sponsoring the Super Bowl halftime show, and there is no telling what else the company has up its sleeve. Coca-Cola has still increased its , and Coca-Cola has stated that it likes the competition because it keeps the company on its toes. We’ll see how it plays out.
Let’s take a look at some important numbers prior to forming an opinion on this stock.
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Coca-Cola is normal. The balance sheet is negative, but very manageable. Coca-Cola’s operating cash flow is over $10 billion.
T = Technicals on the Stock Chart Are Mixed
Coca-Cola has performed well over the past three years. During that time frame, Coca-Cola has outperformed Pepsi by a wide margin. Dr. Pepper Snapple Group (NYSE:DPS) performed the best of the three for that time frame. Pepsi and Dr. Pepper both yield 3 percent. Coca-Cola 2.60 percent.
E = Earnings Have Been Inconsistent
When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.
T = Trends Might Support the Industry
Soda has a bad image right now, sharing the blame for the high instance of obesity and diabetes in the U.S. with fast-food restaurants. Many people are searching out alternatives, cutting down on their soda intake or cutting it out of their diets altogether.
Competition from energy drinks is also a key factor. Luckily, Coca-Cola doesn’t just sell soda (it owns the Minute Maid juice brand and Dasani water), but it still has a lot of catching up to do in the energy drink market.
Other factors weighing on the industry include higher payroll taxes and gasoline prices.
The good news is that Coca-Cola is a highly innovative company with strong management. This company should never be bet against, as it often finds ways to meet challenges.
Coca-Cola has excellent margins, its products are sold in every country in the world, excepting two (North Korea and Cuba), it expects to meet its long-term target of adjusted operating income of 6.8 percent, the dividend was just increased by 12 percent, and it’s one of the most well-known brands in the world.
Perhaps what is most important is that every single dip throughout the history has proven to be a buying opportunity. This is regardless of competition, economic conditions, or the strength or weakness of the stock market.
Coca-Cola is a long-term OUTPERFORM.
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