Coca-Cola Hits All-Time High

Dow component Coca-Cola Co. (KO) posted an all-time high on Tuesday, adding to two-month gains of nearly 20%. That’s quite an uptick for the normally slow mover, highlighting a broad rotation out of growth stocks and into safe havens that can, theoretically at least, withstand rising inflation.  Price action has now cleared stubborn resistance at the February 2020 peak after a pandemic-driven revenue shock, driven by empty stadiums, movie theaters, and theme parks.

Pricing Power Play

Shareholders hope the beverage giant will play catch-up with rival PepsiCo Inc. (PEP), which cleared a similar barrier during in the summer of 2021. Coke needs favorable economics and a reliable distribution network to prosper because it hasn’t diversified into non-beverage products, unlike PEP’s wide variety of snack foods. Management hasn’t helped this cause over the years, building a well-earned reputation for extreme risk avoidance.

UBS analyst Sean King pounded the tables on Tuesday, wondering if Coca-Cola is the “pricing power play of 2022”. As he notes “We believe KO checks the boxes for the key drivers of pricing power in CPG: a) market share leadership, b) category/manufacturer concentration, c) limited exposure to private label, and d) a history of rational pricing competition. We believe KO’s unique pricing & franchise model could enable it to realize a greater increase in profit per concentrate gallon than the fully burdened increase in costs associated with selling that gallon”.

Wall Street and Technical Outlook

Wall Street consensus stands at a positive ‘Overweight’ rating based upon 15 ‘Buy’, 4 ‘Overweight’, 9 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $58 to a Street-high $71 while the stock is set to open Wednesday’s session about $2 below the median $64 target. This modest placement predicts slow but meaningful upside in coming months, in line with the stock’s low volatility reputation.

Coca-Cola roared in the 1990s, topping out at 44.47 in 1998. It finally returned to that resistance level 16 years later, entering a test that continued through 2020’s pandemic decline. The stock bottomed out in the 30s at that time and turned sharply higher, stair-stepping into the prior peak at the start of 2022. A six-week consolidation has now given way to higher prices, setting the stage for a rally into the upper 60s. The company currently pays a 2.71% annual dividend yield.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held Coca-Cola and PepsiCo in family accounts at the time of publication.