Coca-Cola Pops To All-Time Highs (KO)

Knockout headline numbers that crushed analyst expectations were enough to send shares of Coca-Cola (NYSE: KO) to all-time highs on Thursday. The company released their Q4 earnings before the bell and the buyers were busy all day. Revenue grew 16% year on year while cash from operations for the full year 37%, solid numbers from a $250 billion company.

CEO James Quincey said with the release "we made good progress in 2019 by delivering on our financial commitments and growing in a more sustainable way. We continue to transform the organization to act with a growth mindset, which gives us confidence in our 2020 targets and our ability to create a better-shared future for all of our stakeholders."

Positive Comments

He came through on the veiled hint of strong numbers he gave last week when he commented on how strong the consumer sector was looking for 2020 even as other sectors look to be slowing down. Those words had the stock printing fresh all-time high prices immediately and yesterday’s release sent them even higher. Shares are now up over 8% for the year to date and about 25% for the past twelve months overall.

Wall Street shouldn’t be too surprised with their strength of late. Aside from Quincey’s optimism in recent weeks, Credit Suisse were out with a bullish note in early January saying their expectations were for Coke to grow revenue at the high end of its expectations. They lifted their rating to Outperform and tacked on a $64 price tag which would have been about a 20% move from where shares were that day. By yesterday’s close, they were almost halfway there.

In October, UBS gave them a Buy rating and talked about the “fundamental inflection” of growth they were expecting based on the company’s Q3 report. Strong growth in the comparable sales numbers in that report seem to have helped bring about the overall revenue growth that popped up this time.

Toe For Toe With Pepsi

Morgan Stanley struck a similar tone in October when they noted that they believed “KO offers a clearly superior LT top-line growth outlook vs. CPG peers, with stronger pricing power and favorable strategy tweaks, positive momentum in emerging markets, and an inflection in FCF, which are not reflected in relative valuation close to peers." In the same note, they also praised the fundamental momentum underway in Pepsi (NASDAQ: PEP), Coke’s longtime rival.

Over the past decade, Pepsi shares have outperformed those of Coke most of the time, although in recent years the latter has been catching up. While Coke’s stock was hammered last February after management set a cautious outlook in the face of a global slowdown, it’s recovered well since and is up over 30% in the interim compared to Pepsi’s 25%.

However, there’s always another side to the story. The bears will be interested in the fact that volume in North America was fairly flat and led by Coke Zero. This suggests there could be a weakness in other parts of the portfolio which in turn could be driven by Quincey’s push to raise prices or simply strong competition from Pepsi.

Looking Ahead

Still, it’s hard to argue the short side with revenue jumping in the double digits and the stock at all-time highs. Having trade choppy and sideways for much of the last quarter, shares look eager to start off 2020 on the front foot. They’ve broken out of last year’s range and are setting a completely new one. RSI is just starting to come towards 70 so there’s still plenty of room for this to run before eyebrows are raised.