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Coca-Cola

The world’s largest soft drink manufacturer Coca-Cola said it expects to deliver organic revenue growth in 2021 after the COVID-19 pandemic battered sales last year and reported better-than-expected profit in the fourth quarter, sending its shares up about 2% in pre-market trading on Wednesday.

The Atlanta-based company said its EPS declined 29% to $0.34, and comparable EPS (non-GAAP) grew 6% to $0.47, beating the Wall Street consensus estimate of $0.42 per share. For the full year, EPS declined 13% to $1.79, and comparable EPS (non-GAAP) declined 8% to $1.95.

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The company, which trademarks are now sold in over 200 countries, said its net revenue declined 5% to $8.60 billion, just a tad lower than the market expectations of $8.63 billion.

KO delivered a mixed-quality 4Q EPS beat, w/ unit cases/org sales -3% YoY in-line, GM% worse/SG&A better (thematic for KO in ’20), driving better EPS $0.47 vs. Street $0.42.1Q21 off to slow start (lock-down measures) w/volumes down MSD % through early Feb. More importantly for stock: a) initial FY21 EPS guide slightly better (~$2.15 vs. Street$2.10); and b) worst-case transfer tax outcome ~in-line w/expectations. At 23x P/E, we expect muted + stock reaction,” said Kevin Grundy, equity analyst at Jefferies.

Coca-Cola shares, which dipped about 1% in 2020, rose about 2% in pre-market trading on Wednesday.

Coca-Cola Stock Price Forecast

Nine analysts who offered stock ratings for Coca-Cola in the last three months forecast the average price in 12 months $56.67 with a high forecast of $62.00 and a low forecast of $55.00.

The average price target represents a 14.02% increase from the last price of $49.70. From those nine analysts, four rated “Buy”, five rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $55 with a high of $67 under a bull scenario and $31 under the worst-case scenario. The firm currently has an “Overweight” rating on the soft drink manufacturer’s stock.

“We are Overweight on Coca-Cola (KO) after significant stock underperformance given COVID impacts on KO‘s on-premise eating / drinking out business (40% of sales) and gas & convenience (10%) with gov’t mandated restaurant closures and reduced foot traffic. COVID impacts drove a large -26% organic sales decline in 2Q20, but trends improved to -MSD% in July/August and -LSD% in September/October. We forecast a recovery to 8% organic growth in 2021/2022 with a post-COVID recovery in away-from-home,” said Dara Mohsenian, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. Jefferies lowered the target price to $53 from $57. Guggenheim cut the price objective to $53 from $55. Coca-Cola had its price target decreased by HSBC to $58 from $61. Deutsche Bank cut shares to a hold rating from a buy and reduced their price target to $55 from $57.

In addition, JPMorgan lowered shares to a neutral rating from overweight and set a $55 price objective on the stock. Wells Fargo & Company started coverage and issued an overweight rating and a $62 price objective on the stock. Royal Bank of Canada lowered shares to a sector perform rating from an outperform and set a $55 price objective on the stock.

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Analyst Comments

“Net, we’d expect a bit of a relief rally on low-quality Q4 EPS upside, in-line FY21 EPS guidance, which is likely better than feared, unsurprisingly weaker volume trends so far in 2021 (through February but with easier comparisons starting in March), and lower than expected accruals for tax considerations,” Morgan Stanley’s Mohsenian added.

“We believe Coke‘s LT topline growth outlook is above peers, with strong pricing power, and favourable strategy tweaks under Coke’s CEO, including increased innovation and a cultural shift towards a total beverage company.”

Upside and Downside Risks

Risks to Upside: Quicker than expected recovery of COVID-19, favourable FX movements, greater realized price/mix, higher productivity/cost savings and marketing efficiency- highlighted by Morgan Stanley.

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

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