Coca-Cola Tops Earnings Estimates; Target Price $58

The world’s largest soft drink manufacturer Coca-Cola reported better-than-expected earnings and revenue in the first quarter, largely driven by a recovery in markets where coronavirus-related uncertainty has abated, sending its shares up about 1% in pre-market trading on Monday.

The most popular and biggest-selling soft drink reported earnings per share of $0.55, beating analysts’ expectations of $0.50. The company said its net revenue rose about 5% to $9.02 billion, rising for the first time in the last four quarters, also beating Wall Street consensus estimates of $8.6 billion.

Following this, Coca-Cola shares rose about 1% to $54.08 in pre-market trading on Monday.

Analyst Comments

“Net, we’d expect a positive stock reaction to much better than expected top-line results in Q1 with 6% organic sales growth, well above the flat consensus (both of which included extra days), or +1% y-o-y underlying ex extra days, which confirms our viewpoint – even sooner than we expected – that Coke’s top line is poised to rebound above consensus,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We remind investors that consensus only assumes a 29% 2021/22 top-line recovery of the estimated lost $ organic sales in 2020 due to COVID-19, which seems way too low and is far below COVID-19 impacted peers at more like 75%.”

Coca-Cola Stock Price Forecast

Five analysts who offered stock ratings for Coca-Cola in the last three months forecast the average price in 12 months of $58.50 with a high forecast of $62.00 and a low forecast of $56.00.

The average price target represents an 8.98% increase from the last price of $53.68. Of those five analysts, three rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $73 under a bull scenario and $38 under the worst-case scenario. The firm gave an “Overweight” rating on the soft drink company’s stock.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $56 from $53. RBC upped to outperform from sector perform and lifted the target price to $60 from $55. HSBC increased the target price to $60 from $58. Guggenheim upped target price to $54 from $53.

Upside and Downside Risks

Risks to Upside: Quicker than expected post-COVID-19 recovery, KO wins tax appeal, favorable FX, greater price/mix, higher productivity/cost savings, and marketing efficiency -highlighted by Morgan Stanley.

Risks to Downside: Unfavourable resolution of a tax dispute with the IRS, negative FX movements, prolonged impact of COVID-19 on consumer behavior, emerging markets macro volatility, health & wellness pressures, lower than expected productivity, and sugar taxes.

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