Is Coca-Cola a Good Consumer Defensive Stock to Buy?

The Coca-Cola Company (KO) in Atlanta, Ga., is currently trading 2% below its 52-week high of $58.92, which it hit on December 17. For the third quarter, its revenues and EPS beat analysts' expectations by 3.3% and 12.2%, respectively. The company also has a 59-year record of consistent dividend growth and offers a dividend yield of 2.89%.

JPMorgan recently upgraded KO to Overweight, with a $63 price target, up from $59. Credit Suisse Group set the same price target for the stock.

The stock has gained 4.8% in price over the past month and 13.7% over the past nine months to close yesterday’s trading session at $57.77. Furthermore, the company’s sales are expected to increase with the economy’s reopening. So, we think KO’s near-term prospects look bright.

Here is what I think could influence KO’s performance in the upcoming months:

Robust Financials

KO’s net revenue increased 16% year-over-year to $10 billion in its fiscal third quarter, which ended November 28. The company’s operating income grew 26% year-over-year to $2.90 billion, while its non-GAAP net income came in at $2.82 billion, representing an 18.2% year-over-year increase. And its non-GAAP EPS was $0.65, up 18% year-over-year.

Favorable Analyst Estimates

For its fiscal 2021, analysts expect KO’s EPS and revenue to grow 17.4% and 15.5%, respectively, year-over-year to $2.29 and $38.13 billion. In addition, its EPS is expected to grow 9.7% per annum over the next five years. And Wall Street analysts expect the stock to hit $62 in the near term, indicating a potential 7.3% upside.

High Profitability

In terms of trailing-12-month net income margin, KO’s 23.31% is 329.2% higher than the 5.43% industry average. Its 18.54% trailing-12-month levered FCF margin is 285.4% higher than the 4.81% industry average. And the stock’s trailing-12-month ROCE, ROTC, and ROTA of 43.22%, 10.58%, and 9.73%, respectively, are higher than the 11.93%, 6.83%, and 4.59% industry averages.

POWR Ratings Show Promise

KO has an overall B rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, DRI has an A grade for Quality, in sync with its higher-than-industry profitability ratios.

The stock has a B grade for Stability, consistent with its 0.69 beta. In addition, PRPL also has a B grade for Sentiment. This is justified with favorable analyst estimates.

Beyond what I have stated above, we have also given KO grades for Value, Growth, and Momentum. Get all the KO ratings here.

KO is ranked #11 of 35 stocks in the B-rated Beverages industry.

Bottom Line

KO reported impressive fiscal third-quarter results despite rising COVID-19 cases and labor and supply shortages. Also, it is well-positioned to benefit from the strong holiday demand. So, we think it could be wise to buy the stock now.

How Does Coca-Cola (KO) Stack Up Against its Peers?

KO has an overall POWR Rating of B. One could also check out these other stocks within the Beverages industry with an A (Strong Buy) rating: Coca-Cola Consolidated, Inc. (COKE), Coca-Cola Femsa S.A.B. de C.V. ADR (KOF), and Compania Cervecerias Unidas, S.A. (CCU).

KO shares were trading at $58.09 per share on Wednesday afternoon, up $0.32 (+0.55%). Year-to-date, KO has gained 9.27%, versus a 26.24% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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