Coca-Cola (KO) Poised To Have Modest Price Upside Post Earnings

The company’s ability to generate profits through licensing its trademark to beverage manufacturers enhances its revenue streams and profitability. It also has a history of rising dividend payouts. Despite facing challenges, Coca-Cola maintains a stable market share in North America, its largest market.

Over the past few years after pandemic, we have seen middle-class population growing in emerging markets, this has driven the global soft drinks market growth as lifestyle changes.

Countries in Asia, Latin America, and parts of Africa have seen substantial disposable incomes growth and urbanization, this has resulted in consumer habits changes. With greater purchasing power, their preferences for beverages also change, products which were discretionary (such as soft drinks), have become a much sought after.

This demographic shift has led to a rise in demand for various soft drink categories, such as carbonated soft drinks, fruit juices, and ready-to-drink teas and coffees. The convenience of packaged soft drinks and their availability in retail outlets and convenience stores aligns well with the busy lifestyles of the growing middle-class population.

The emergence of weight loss drugs, such as Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro, poses a potential threat to Coca-Cola’s business. These drugs may lead to reduced demand for high-calorie or unhealthy beverages.

The EPS consensus estimates stands at $0.47 or 9% yoy growth, with revenue expected to come in at $10.67 bl or 5% yoy growth. Operating income expected to be $2.4 bl or 6% yoy growth.

KO last reported earnings on 24 Oct 2023 before the market opened (BMO). KO shares gained +2.9% the day following the earnings announcement to close at 55.20. Following its earnings release, 111 days ago, KO stock has drifted +8.2% higher. From the time it announced earnings, KO traded in a range between 54.66 and 61.01. The last price (59.70) is closer to the higher end of range.

Estimated implied straddle for upcoming earnings is 2.7%. Looking at its past price effect with relation to implied straddle, we might see a positive price move of around 1.5% to 2.0% post earnings.

Coca-Cola is still very much a stock which has a good profitability, growth and momentum. We might seen a rather flat trading since 2024 begin. But I believe the momentum would pick up soon.

With the emerging market preferences for lifestyle drinks changes, we could expect Coca-Cola revenue from these markets to show some significance.

Coca-Cola currently is priced above Pepsi and it is currently trading with a decline over the last week, but we saw a recovery of its stock price yesterday (12 Feb).

I think we would need to see what the upcoming earnings show us on Coca-Cola mitigation plan to fight over campaign over healthy drink, and with the rise of weight loss drug, these might impact how the sales over the festive season (both Christmas and CNY) would reflect.

Coca-Cola have been innovating and we can relate to them as their products is available in supermarket and shops near us. Even though we can see people becoming more health conscious, but there is still a cause for celebration especially when gathering with friends and families.

The Coca-Cola brand is almost a must in almost every household I went during the CNY visit.

Appreciate if you could share your thoughts in the comment section whether you think Coca-Cola could still continue to dominate the soft drink market with the weight-loss drug challenges?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.