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Coca-Cola Emerges from COVID-19 Shock, Posts Better-Than-Expected Q3 Earnings

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Coca-Cola Co, the world’s largest manufacturer of soft drink, reported a better-than-expected profit and revenue in the third quarter as at-home sales helped the company emerge from the COVID-19 pandemic shock, sending its shares up about 2% on Thursday.

The world’s largest soda maker said its net revenues declined 9% to $8.7 billion and organic revenues declined 6%. Revenue performance included a 4% decline in concentrate sales and a 3% decline in price/mix, the company said.

Coca-Cola reported improvement in trends versus the prior quarter, with revenue declines versus the prior year driven by ongoing pressure in away-from-home channels partially offset by sustained growth in at-home channels. The company said its EPS plunged 33% to $0.40; comparable EPS declined 2% to $0.55.

“With the bar adequately lowered for 3Q given continued on-premise weakness, the exit rate for volume trends for October was naturally a key focus for investors. The start to the quarter is encouraging and gives further credence that Street EPS estimates may have finally bottomed, which should provide a lift to the stock today,” said Kevin Grundy, equity analyst at Jefferies.

“Yet, at 25x P/E (on reset Street estimates, and V-shaped recovery reflected in Street ests.), KO’s multiple looks relatively full and should limit a material break-out for the shares, in our view.”

At the time of writing, Coca-Cola shares traded 1.74% higher at $50.86 on Thursday; however, the stock is down about 8% so far this year.

Executive Comments

“Throughout this year’s crisis, our system has remained focused on its beverages for life strategy. We are accelerating our transformation that was already underway, shaping our company to recover faster than the broader economic recovery,” said James Quincey, chairman and CEO of The Coca-Cola Company.

“While many challenges still lie ahead, our progress in the quarter gives me confidence we are on the right path.”

Coca-Cola Stock Price Forecast

Nine equity analysts forecast the average price in 12 months at $54.78 with a high forecast of $60.00 and a low forecast of $48.00. The average price target represents a 7.81% increase from the last price of $50.81. From those nine equity analysts, eight rated “Buy”, one rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $54 with a high of $67 under a bull scenario and $33 under the worst-case scenario. Jefferies raised their price target to $51 from $48 and JP Morgan upped their stock price forecast to $55 from $51.

Several other analysts have also recently commented on the stock. Guggenheim raised their target price to $53 from $51. Bank of America reissued a “buy” rating and set a $53 price objective. Zacks Investment Research lowered from a “hold” rating to a “sell” rating and set a $49 price objective on the stock.

Analyst Comments

“We are ‘Overweight’ Coca-Cola after significant stock underperformance given COVID-19 impacts on KO’s on-premise eating / drinking out business (40% of sales) and gas & convenience (10%) with gov’t mandated restaurant closures and reduced foot traffic. The COVID-19 impacts drove a large -26% organic sales decline in 2Q20, but trends improved to -MSD% in July to-date. We forecast a recovery to 8% average organic growth in 2021/2022 with a post-COVID-19 recovery in away-from-home,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We believe Coke’s long-term topline growth outlook is above peers, with strong pricing power, and favourable strategy tweaks under Coke’s relatively new CEO, including increased innovation and a cultural shift towards a total beverage company,” Mohsenian added.

Upside and Downside Risks

Upside: Quicker than expected recovery of COVID-19, favourable FX movements, greater realized pricing power, and higher productivity – highlighted by Morgan Stanley.

Downside: Unfavorable FX movements, the prolonged impact of COVID-19 on consumer behaviour, tariffs, emerging markets macro volatility, health & wellness pressures, lower than expected productivity, and soda taxes.

Check out FX Empire’s earnings calendar

This article was originally posted on FX Empire

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