Did the Rally in Coca-Cola Company Stock Just Fizzle Out?

Key Points

• Coca-Cola struggled in Q1 but pulled off another quarter of growth ahead of analysts' forecasts.
• Prices are in the mix, helping the top line and sustaining margin for investors. 
• Analysts rate the stock a buy and see it moving higher within its trading range. 

Shares of Coca-Cola Company NYSE: KO gained nearly 20% from 2023’s low to 2024’s high and about 6% for the year because of the growth outlook, valuation, and capital return. The stock is pulling back to retest support following the Q1 release because the news, as good as it is, was little more than what the market expected. 

The near-term headwind is sentiment, which has been reset. The long-term driver remains the same: the growth outlook, valuation, and capital return. The company is forecasting growth, and shares of KO are still trading below the 3, 5, and 10-year average price multiples while yielding more than 3%. 

Coca-Cola’s Global Business Supports Growth

Coca-Cola struggled in Q1 with FX headwinds, inflation, higher pricing, and lower concentrate volumes contributing to results. However, the company reported $11.3 billion in net revenue for a gain of 2.7%. The growth is 300 basis points above the Marketbeat.com consensus and favorable to higher share prices. Growth is due primarily to the company’s lean into digital, which includes extensive branding initiatives across social media platforms and the deepening penetration of markets. 

Global unit case volume grew by 1%, while FXN organic growth peaked at 11%. Price and mix contributed 13%, offset by a 2% decline in volume. The price increases are centered in Latin America and EMEA, where FX headwinds are blowing the strongest. Volume was impacted by one less day in the quarter, and the timing of shipments and otherwise would have been positive. 

The margin news is mixed but favorable to shareholders. The GAAP operating income contracted by half due to one-offs, non-cash impairments, and the impact of FX headwinds, but other data offset it. The adjusted comparable margin improved by 60 basis points, and the GAAP and adjusted earnings are better than expected. GAAP and adjusted earnings are up 4% and 7% compared to last year, outpacing the topline growth despite the headwinds due to increased Other income, lower taxes, and a reduced share count. Shares are down about 0.5% YOY and should continue to fall incrementally throughout the year. 

Among the best news is the cash flow and free cash flow. The cash flow more than doubled, while FCF came in at $158 million to reverse last year’s outflow. The impact on the balance sheet was noticeable, with cash, marketable securities, inventory, and receivables all up compared to last year. Liabilities are also up but offset by the increases, leaving the balance sheet in fortress conditions. The company’s long-term debt is about 1.25X equity and 2.3X cash, well within manageable ranges. 

Top-Rated Coca-Cola Company Led Higher By Analysts

Coca-Cola is a Top Rated Dividend Stock on the Marketbeat.com platform, which has been led higher by revisions. The seven analysts tracked by the platform peg the stock at Moderate Buy and have it trading near $67.25. The $67.25 has been steady over the last twelve months but 8.5% above the price. The analysts are more likely to increase their targets now that guidance is in because the consumer staples company shows pricing power. The risk is that Q2 and H2 results will be weaker than expected and cap gains at higher price points later in the year. 

The post-release action is mixed but shows support near recent highs. Assuming the market follows recent trends, it should continue higher soon. The target for critical resistance is near $62.50 and will be an important pivot point for the market. If the price action continues higher, it will likely move up to the $65 level, where resistance may be stronger. If a new high can’t be reached, shares of KO will likely remain range-bound at current levels.