Is there anyone in the world who does not know of The Coca-Cola Company (KO 0.14%)? Established in 1886, it has evolved from a local soda fountain syrup to a global beverage company famous for its iconic branding and distinctive taste. The stock went public in 1919, rewarded shareholders handsomely throughout the century, and started paying dividends in 1964.
Yet, recent times have been a bit frustrating for shareholders. Although the company is the global beverage leader, its stock has struggled over the past five years, severely underperforming the overall market. So, let's examine the stock and Coca-Cola's recent key financial metrics to evaluate whether it should be considered a buy, sell, or hold.
Coca-Cola has long been a favorite stock of Warren Buffett, who first bought shares through Berkshire Hathaway in 1988 and then over the next seven years for a total of $1.3 billion. Despite not reinvesting Coca-Cola's dividends, which amounted to a noteworthy $704 million in 2022 alone, Berkshire's ownership stake has risen.
This is as a result of Coca-Cola's strategic stock repurchases. To illustrate, Berkshire's 400 million shares (split adjusted), representing a 7.8% ownership stake in 1994, have expanded to 9.2% through share buybacks. Though Berkshire Hathaway hasn't acquired more shares since 1994, Buffett has emphatically declared that he will never sell a single share of the stock.
Berkshire Hathaway's investment illustrates that Coca-Cola is dedicated to returning capital to shareholders. It has paid and raised its dividend annually for 61 consecutive years. Today, the beverage behemoth pays a quarterly dividend of $0.46 per share, representing an impressive annual yield of roughly 3.2%.
And management has lowered the company's outstanding share count by 16% since 1994, which, as exemplified in Berkshire's case, is a tax-efficient way of increasing a shareholder's ownership stake.
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What could go wrong for Coca-Cola?
Before considering any investment, an investor should consider the bear case to determine possible risks. For Coca-Cola, the company's commitment to returning capital to shareholders is also one of its most significant risks.
For dividend-paying companies like Coca-Cola, the payout ratio (annual dividend payments divided by annual earnings) is an important metric to monitor to ensure the company can afford to maintain and potentially raise its payout. Generally, any payout ratio higher than 75% should give an investor pause. With a payout ratio of about 72%, Coca-Cola could struggle to raise its dividend if earnings stagnate.
The company has lowered its share count over the past few decades, but management has struggled to make meaningful inroads in recent years. That's because Coca-Cola's current share-repurchase program is aimed at offsetting dilution resulting from employee stock-based compensation plans rather than previous programs that succeeded in drastically lowering its outstanding shares.
To illustrate, the outstanding share count is actually up 1.3% over the past five years, but management lowered it by 0.1% in 2023 with its new goal. All together, Coca-Cola will be spending roughly $8 billion on dividends in 2023 and has already allocated $1 billion in share repurchases through September for a total of at least $9 billion.
Considering that the company expects to generate $9.5 billion in free cash flow for 2023, there isn't much room left for paying down its $25 billion in net debt (total debt minus cash and cash equivalents), which is becoming more expensive to service as interest rates stay elevated.
And the company has an unsettled $3.4 billion tax debt for the years 2007 to 2009, as the beverage company allegedly limited its royalty income in the U.S. The ongoing litigation has it disputing the Internal Revenue Service's action and the latest decision by the U.S. Tax Court, calling the amended calculation methodology "unconstitutional."
What could go right for Coca-Cola?
For mature companies like Coca-Cola, a revenue plateau is inevitable. The company's high-water mark occurred in 2012, with $48 billion in net revenue. That key metric was in free fall until 2022 and now finally appears to be reversing course.
Specifically, the beverage company's revenue bottomed out in 2020 at $33 billion, before increasing to $38.6 billion in 2021 and $43 billion in 2022.
Management expects its organic revenue (excluding currency fluctuations and recent acquisitions, divestitures, and structural changes) to grow 10% to 11% in 2023 compared to 2022. For its most recently reported quarter, it pointed to a 2% volume increase and price hikes for the strong growth.
Earnings per share (EPS) also appear to be growing again. The company generated a diluted EPS of $2.01 through the first three quarters of 2023, up 17% year over year. And management expects EPS to grow 13% to 14% on a currency-neutral basis for the full-year 2023 compared to 2022.
Nonetheless, the stock has some red flags, as outlined here, which is perhaps why Berkshire Hathaway hasn't purchased anymore shares since 1994. All in all, Coca-Cola is still a good stock to hold for dividend-seeking investors since management will likely continue to prioritize returning capital to shareholders, given its history.
For investors seeking stability and income, Coca-Cola remains an attractive option, and they should continue to hold the stock. However, investors should continually monitor the company's challenges, including shifting consumer preferences and revenue growth, to ensure it can sustain its increasing dividend.
Is Coca-Cola stock a Buy, Sell or Hold? Coca-Cola stock has received a consensus rating of buy. The average rating score is A1 and is based on 42 buy ratings, 6 hold ratings, and 0 sell ratings.
Coca-Cola has 7.30% upside potential, based on the analysts' average price target. Is KO a Buy, Sell or Hold? Coca-Cola has a consensus rating of Strong Buy which is based on 14 buy ratings, 2 hold ratings and 0 sell ratings.
Coca-Cola (NYSE: KO) stock has climbed to new highs in 2024. This is despite economic softness in certain regions around the world that are weighing on co*ke's sales. Still, it's delivering profitable growth and has an impressive dividend-growth record.
The 14 analysts with 12-month price forecasts for KO stock have an average target of 69.5, with a low estimate of 64 and a high estimate of 73. The average target predicts an increase of 5.61% from the current stock price of 65.81.
Valuation metrics show that CocaCola Company (The) may be overvalued. Its Value Score of D indicates it would be a bad pick for value investors. The financial health and growth prospects of KO, demonstrate its potential to underperform the market. It currently has a Growth Score of D.
According to the latest long-term forecast, Coca-Cola price will hit $70 by the end of 2024 and then $80 by the end of 2026. Coca-Cola will rise to $85 within the year of 2027, $90 in 2028, $100 in 2029, $110 in 2030, $125 in 2032 and $150 in 2036.
As of 2024-07-21, the Fair Value of Coca-Cola Co (KO) is 30.82 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 65.29 USD, the upside of Coca-Cola Co is -52.80%.
Its high yield, track record, and recession-resistant business model make co*ke the embodiment of a blue chip dividend stock. However, there are plenty of other reliable dividend stocks.
While Coca-Cola's consistently growing dividend is one of its selling points, it's also a potential risk. For any dividend stock, it's essential to measure its earnings and compare it to its dividends paid out to determine whether it can continue to afford to distribute dividends to shareholders.
The Coca-Cola stock holds buy signals from both short and long-term Moving Averages giving a positive forecast for the stock. Also, there is a general buy signal from the relation between the two signals where the short-term average is above the long-term average.
Coca-Cola Company (NYSE:KO) has announced annual dividend increases over the past 62 years without a break, an achievement which has made it one of the safest dividend stocks in the market.
Based on short-term price targets offered by 24 analysts, the average price target for Bank of America comes to $42.69. The forecasts range from a low of $33.90 to a high of $49.00. The average price target represents an increase of 0.66% from the last closing price of $42.41.
Is BAC a Buy, Sell or Hold? Bank of America has a consensus rating of Moderate Buy which is based on 10 buy ratings, 5 hold ratings and 1 sell ratings.
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Introduction: My name is Madonna Wisozk, I am a attractive, healthy, thoughtful, faithful, open, vivacious, zany person who loves writing and wants to share my knowledge and understanding with you.
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