Coca-Cola Perfectly Positioned for Breakout

Dow component Coca-Cola Co. (KO) is trading lower with U.S. stocks on Tuesday morning but looks are deceiving because the beverage icon is perfectly positioned to complete a rally into 2020’s all-time high and enter a strong uptrend. Seasonality is lending a hand in the uptick, with dividend plays often attracting buying interest in the second and third quarters, as investors sell first half winners and park profits until new opportunities arise.

Pandemic Pummeling

Revenues got battered through most of 2020, with lucrative sports franchises and stadium deals gathering dust due to pandemic shutdowns. Restaurant closures also compounded losses, along with an overly-narrow product line, at least compared to rival PepsiCo Inc. (PEP). The venerable Coke machine even took a hit because thirsty customers were reluctant to hold physical coins and bills or touch potentially-infectious plastic surfaces.

The current downturn in world markets should add to upside in coming months, with growing worries about inflation and over-valuation triggering a flight to safety. However, we can’t rule out the adverse impact of surging agricultural prices, which could undermine profit margins in coming quarters. Even so, it could be a blessing in disguise because targeted price increases have the power to overcome those headwinds and add to the bottom line.

Wall Street and Technical Outlook

Wall Street is getting the message, lifting consensus to a ‘Moderate Buy’ and $60 target. CEO James Quincy supported that bullish analysis in an interview last month, stating the company will exceed guidance if the second quarter strength matches Q1 results. However, he admitted that cost pressures could have an impact as economies reopen and demand rises but said the company will “manage price increases” to maintain profitability.

Coca-Cola completed a round trip into the 1998 high in the 40s in 2013 and entered a multiyear test, finally clearing resistance in 2019. It failed the breakout after posting an all-time high at 60.13 in February 2020, dropping 40% in just five weeks. A slow motion recovery wave reached major Fibonacci resistance in December, yielding a pullback, followed by a bounce that’s now testing that harmonic barrier.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Coca-Cola Tops Earnings Estimates; Target Price $58

The world’s largest soft drink manufacturer Coca-Cola reported better-than-expected earnings and revenue in the first quarter, largely driven by a recovery in markets where coronavirus-related uncertainty has abated, sending its shares up about 1% in pre-market trading on Monday.

The most popular and biggest-selling soft drink reported earnings per share of $0.55, beating analysts’ expectations of $0.50. The company said its net revenue rose about 5% to $9.02 billion, rising for the first time in the last four quarters, also beating Wall Street consensus estimates of $8.6 billion.

Following this, Coca-Cola shares rose about 1% to $54.08 in pre-market trading on Monday.

Analyst Comments

“Net, we’d expect a positive stock reaction to much better than expected top-line results in Q1 with 6% organic sales growth, well above the flat consensus (both of which included extra days), or +1% y-o-y underlying ex extra days, which confirms our viewpoint – even sooner than we expected – that Coke’s top line is poised to rebound above consensus,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We remind investors that consensus only assumes a 29% 2021/22 top-line recovery of the estimated lost $ organic sales in 2020 due to COVID-19, which seems way too low and is far below COVID-19 impacted peers at more like 75%.”

Coca-Cola Stock Price Forecast

Five analysts who offered stock ratings for Coca-Cola in the last three months forecast the average price in 12 months of $58.50 with a high forecast of $62.00 and a low forecast of $56.00.

The average price target represents an 8.98% increase from the last price of $53.68. Of those five analysts, three rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $73 under a bull scenario and $38 under the worst-case scenario. The firm gave an “Overweight” rating on the soft drink company’s stock.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $56 from $53. RBC upped to outperform from sector perform and lifted the target price to $60 from $55. HSBC increased the target price to $60 from $58. Guggenheim upped target price to $54 from $53.

Upside and Downside Risks

Risks to Upside: Quicker than expected post-COVID-19 recovery, KO wins tax appeal, favorable FX, greater price/mix, higher productivity/cost savings, and marketing efficiency -highlighted by Morgan Stanley.

Risks to Downside: Unfavourable resolution of a tax dispute with the IRS, negative FX movements, prolonged impact of COVID-19 on consumer behavior, emerging markets macro volatility, health & wellness pressures, lower than expected productivity, and sugar taxes.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Coca-Cola, United Airlines, NetFlix and SVB Financial in Focus

Earnings Calendar For The Week Of April 19

Monday (April 19)

IN THE SPOTLIGHT: COCA-COLA, UNITED AIRLINES

COCA-COLA: The world’s largest soft drink manufacturer is expected to report its first-quarter earnings of $0.50 per share, which represents a year-over-year decline of about 2% from $0.51 per share seen in the same quarter a year ago.

The company’s revenue growth to be flat at $8.6 billion. However, in the last two years, on average, Coca-Cola has beaten revenue estimates over 70% and earnings estimates of nearly 90%.

Coca-Cola, which has still not seen a full recovery to its pre-COVID-19 level, may be a decent investment opportunity at the moment. The stock traded around $60 pre-COVID in February 2020 and is 11% below that level. However, the stock has gained 40% since its March lows of $37, following the Fed’s stimulus package and measures announced by other economies. The gradual lifting of lockdowns and successful vaccine rollout has further enthused markets in anticipation of faster economic recovery,” noted analysts at TREFIS.

“However, the stock is unlikely to surpass its pre-Covid level anytime soon, as most of its business depends on demand from people going to entertainment venues, sporting events, etc. These locations are not yet fully operational in most parts of the world. With the recent spike in Covid cases, there are some forms of lockdowns imposed again in certain economies, thus slowing the recovery in demand. Therefore, in the absence of another complete lockdown (as was seen in 2020) and implementation of the vaccination program the stock is likely to rise, but full recovery to February 2020 levels looks unlikely in the near term. KO stock has a potential upside of about 10%.”

UNITED AIRLINES: One of the largest airlines in the world is expected to report a loss for the fifth consecutive time of $6.91 in the first quarter of 2021 on April 19 as the aviation service provider continues to be negatively impacted by the ongoing COVID-19 pandemic and renewed travel restrictions.

That would represent a year-over-year decline of over 168% from -$2.57 per share seen in the same quarter a year ago. The Chicago-based airline’s revenue would decline about 60% to around $3.3 billion.

“Most of the US airlines will report 1Q21 earnings the week of April 19 and 26. We expect the focus to be on higher fuel costs, the nascent traffic recovery, and improving the balance sheet. Our focus remains on domestic leisure airlines while watching borders reopening to determine recovery for international traffic. We also expect airlines to talk about repairing their balance sheet,” said Helane Becker, equity analyst at Cowen and Company.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE APRIL 19

Ticker Company EPS Forecast
KO Coca-Cola $0.50
PLD ProLogis $0.37
MTB M&T Bank $3.00
ONB Old National Bancorp $0.41
UAL United Airlines Holdings -$6.98
CCK Crown $1.37
STLD Steel Dynamics $1.84
ZION Zions Bancorporation $1.18
PNFP Pinnacle Financial Partners $1.43
ACC American Campus Communities $0.15
HXL Hexcel -$0.16
WTFC Wintrust Financial $1.40
FNB FNB $0.25
SFBS ServisFirst Bancshares $0.95
HDS HD Supply Holdings $0.39
IBM IBM $1.68
EIDX Eidos Therapeutics Inc -$0.80
LII Lennox International $1.25
CDNS Cadence Design Systems $0.74

 

Tuesday (April 20)

IN THE SPOTLIGHT: NETFLIX

The California-based global internet entertainment service company is expected to report its first-quarter earnings of $2.97 per share, which represents year-over-year growth of over 90% from $1.57 per share seen in the same quarter a year ago. The streaming video pioneer would post revenue growth of over 23% to around $7.15 billion.

“We expect paid net adds to be in line with guide, helped in part by ongoing COVID shutdowns in some markets. Our view is supported by our positive 1Q survey data, which implies NFLX continues to lead living room TV apps. We also view the 45% of survey respondents who share passwords as a LT opp’ty for incremental subs. Reiterate Outperform & $675 Price Target,” noted John Blackledge, equity analyst at Cowen and Company.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE APRIL 20

Ticker Company EPS Forecast
ABF Associated British Foods £17.31
XRX Xerox $0.29
AN AutoNation $1.85
DOV Dover $1.45
JNJ Johnson & Johnson $2.33
PG Procter & Gamble $1.19
ABT Abbott $1.27
PM Philip Morris International $1.40
LMT Lockheed Martin $6.31
DANOY Danone PK $0.46
TRV Travelers Companies $2.38
FITB Fifth Third Bancorp $0.69
EDU New Oriental Education Tech $0.06
NTRS Northern $1.49
KEY KEY $0.47
OMC Omnicom $1.13
CMA Comerica $1.38
SNV Synovus Financial $0.93
HOG Harley Davidson $0.90
IRDM Iridium Communications -$0.05
MAN ManpowerGroup $0.67
WBS Webster Financial $0.90
GATX GATX Corp $0.89
SFNC Simmons First National $0.52
BMI Badger Meter $0.42
NFLX Netflix $2.97
ISRG Intuitive Surgical $2.64
CSX CSX $0.96
EW Edwards Lifesciences $0.47
WRB W.R. Berkley $0.83
IBKR Interactive Brokers $0.87
THC Tenet Healthcare $0.73
HWC Hancock Whitney Corp $0.97
UCBI United Community Banks $0.64
FULT Fulton Financial $0.35
FMBI First Midwest Bancorp $0.37
EMR Emerson Electric $0.89
PCAR PACCAR $1.29
TER Teradyne $1.04
ENTG Entegris $0.72
CIT CIT $0.98
AVNT Avient Corp $0.71
ELS Equity Lifestyle Properties $0.35
PACW Pacwest Bancorp $0.91
BECN Beacon Roofing Supply $0.08

 

Wednesday (April 21)

IN THE SPOTLIGHT: SIGNATURE BANK

The New York-based full-service commercial bank is expected to report its first-quarter earnings of $2.85 per share, which represents year-over-year growth of over 50% from $1.88 per share seen in the same quarter a year ago. The bank would post revenue growth of about 18% to around $428 million.

SBNY has a unique business model, with its single-point-of-contact bankers, excellent credit culture, and a highly efficient operating structure. Its loan growth continues to outpace peers, given its relatively new focus on growing its PE/VC capital call lending business, while strategically de-emphasizing its NYC MF portfolio,” Ken Zerbe, equity analyst at Morgan Stanley.

“While we do expect losses in SBNY’s CRE portfolio, we believe the market is overly discounting this in the stock price, particularly given its strong underwriting history and conservative lending.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE APRIL 21

Ticker Company EPS Forecast
HCSG Healthcare Services $0.27
ERIC Ericsson $0.11
TEL TE Connectivity $1.48
NDAQ Nasdaq Omx $1.72
RCI Rogers Communications USA $0.53
BKR Baker Hughes Co $0.11
HAL Halliburton $0.17
RANJY Randstad Holdings $0.46
SBNY Signature Bank $2.85
FHN First Horizon National $0.35
KNX Knight Transportation $0.70
BOKF BOK Financial $1.92
NEP Nextera Energy Partners $0.33
FCFS FirstCash $0.70
ASML ASML $3.06
NEE NextEra Energy $0.58
ANTM Anthem $6.38
LAD Lithia Motors $4.74
CP Canadian Pacific Railway USA $4.35
CACI Caci International $3.68
CMG Chipotle Mexican Grill $4.89
KMI Kinder Morgan $0.24
DFS Discover Financial Services $2.81
WHR Whirlpool $5.04
GGG Graco $0.50
GL Globe Life Inc $1.63
SLM SLM $1.05
REXR Rexford Industrial Realty $0.06
LSTR Landstar System $1.63
FR First Industrial Realty $0.24
RLI RLI $0.66
VMI Valmont Industries $1.92
SLG SL Green Realty -$0.14
UFPI Universal Forest Products $0.87
UMPQ Umpqua $0.44
TCBI Texas Capital Bancshares $1.09
BXS BancorpSouth $0.63
SNBR Scs Group Plc $1.85
CNS Cohen & Steers $0.76
RUSHA Rush Enterprises $0.52
PLXS Plexus $1.25
TBK Triumph Bancorp $0.91
BDN Brandywine Realty $0.02
EFX Equifax $1.53
LRCX Lam Research $6.60
CCI Crown Castle International $0.53
STL Sterling Bancorp $0.46
CHDN Churchill Downs $0.64
NWE Northwestern $1.12
RHI Robert Half International $0.80
SEIC SEI Investments $0.88
CVBF CVB Financial $0.37
LVS Las Vegas Sands -$0.27
PKX Posco $2.22
URI United Rentals $3.08
BZLFY Bunzl plc $0.15
ELISA Elisa Oyj €0.51

 

Thursday (April 22)

IN THE SPOTLIGHT: SVB FINANCIAL

The parent of Silicon Valley Bank is expected to report its first-quarter earnings of $6.47 per share, which represents year-over-year growth of about 153% from $2.55 per share seen in the same quarter a year ago.

In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 45%. The Santa Clara, California-based company would post revenue growth of over 50% to about $1.24 billion.

SIVB is one of the fastest-growing banks in our coverage universe, with an average of 20%+ loan and deposit growth annually since 2010, with the growth driven by its unique niche of lending to the technology and life sciences industries, including PE and VC capital call lines. While we expect growth to slow, we still see low-teens loan growth (well above peers) for the next several years,” noted Ken Zerbe, equity analyst at Morgan Stanley.

“We are Equal-weight the shares due to valuation. SIVB is trading at just over 20x forward earnings and more than 10 P/E points above its peers (versus a 4-6x multiple premium that we believe it deserves). SIVB‘s earnings are highly sensitive to changes in Fed funds. Rate increases would drive higher EPS.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE APRIL 22

Ticker Company EPS Forecast
WSO Watsco $0.88
LUV Southwest Airlines -$1.88
VLO Valero Energy -$1.56
AAL American Airlines -$4.18
HCA HCA $3.31
SAP SAP $1.21
GPC Genuine Parts $1.14
FRME First Merchants $0.78
NUE Nucor $3.07
FCX Freeport-McMoran $0.51
PNR Pentair Ordinary Share $0.61
ALK Alaska Air -$3.68
SASR Sandy Spring Bancorp $1.02
ORI Old Republic International $0.46
DOW Dow Chemical $1.10
DHR Danaher $1.74
WNS Wns Holdings $0.69
FAF First American Financial $1.31
RS Reliance Steel & Aluminum $3.55
T AT&T $0.78
UNP Union Pacific $2.08
TPH Tri Pointe Homes $0.47
TAL TAL International -$0.23
HBAN Huntington Bancshares $0.32
AEP American Electric Power $1.18
BIIB Biogen $5.02
DHI DR Horton $2.18
EWBC East West Bancorp $1.25
BX Blackstone $0.75
DGX Quest Diagnostics $3.74
POOL Pool $1.14
ALLE Allegion $1.02
CLF Cliffs Natural Resources $0.35
TSCO Tractor Supply $0.97
TRN Trinity Industries $0.06
MKTX MarketAxess $2.12
BKU BankUnited $0.74
SNA Snap-On $3.03
IQV IQVIA Holdings Inc $1.85
SON Sonoco Products $0.86
ODFL Old Dominion Freight Line $1.58
SKX Skechers USA $0.49
INDB Independent Bank $1.09
HTH Hilltop $1.01
CE Celanese $2.98
OZK Bank Ozk $0.86
FFBC First Financial Bancorp $0.47
CSL Carlisle Companies $0.68
SAM Boston Beer $2.60
STX Seagate Technology $1.33
VICR Vicor $0.19
WWE World Wrestling Entertainment $0.20
ABCB Ameris Bancorp $1.13
ARI Apollo Commercial Real Est Finance $0.33
GBCI Glacier Bancorp $0.75
SBCF Seacoast Banking Of Florida $0.48
VRSN Verisign $1.34
MAT Mattel -$0.34
WSFS Wsfs Financial $0.86
SNAP Snap -$0.21
SIVB SVB Financial $6.47
ASB Associated Banc $0.43
FE FirstEnergy $0.69
ADS Alliance Data Systems $3.21
CTXS Citrix Systems $1.42
PBCT People’s United Financial $0.34
CAJ Canon $0.27
WST West Pharmaceutical Services $1.42
NVR NVR $61.90
FFIN First Financial Bankshares $0.37
VVV Valvoline Inc $0.37
SAFE 3 Sixty Risk $0.33
ASR Grupo Aeroportuario Del Sureste $23.55
ORAN Orange $0.24
INTC Intel $1.14
KPELY Keppel Corporation $0.14
SAVE Spirit Airlines -$2.55
CS Credit Suisse -$0.40

 

Friday (April 23)

Ticker Company EPS Forecast
SXT Sensient Technologies $0.75
ALV Autoliv $1.43
SLB Schlumberger $0.18
AXP American Express $1.60
KMB Kimberly Clark $1.93
HON Honeywell International $1.80
RF Regions Financial $0.47
GNTX Gentex $0.49
E ENI $0.42

 

Soda Maker Coca-Cola Forecasts Revenue Growth in 2021; Shares Gain About 2%

The world’s largest soft drink manufacturer Coca-Cola said it expects to deliver organic revenue growth in 2021 after the COVID-19 pandemic battered sales last year and reported better-than-expected profit in the fourth quarter, sending its shares up about 2% in pre-market trading on Wednesday.

The Atlanta-based company said its EPS declined 29% to $0.34, and comparable EPS (non-GAAP) grew 6% to $0.47, beating the Wall Street consensus estimate of $0.42 per share. For the full year, EPS declined 13% to $1.79, and comparable EPS (non-GAAP) declined 8% to $1.95.

The company, which trademarks are now sold in over 200 countries, said its net revenue declined 5% to $8.60 billion, just a tad lower than the market expectations of $8.63 billion.

KO delivered a mixed-quality 4Q EPS beat, w/ unit cases/org sales -3% YoY in-line, GM% worse/SG&A better (thematic for KO in ’20), driving better EPS $0.47 vs. Street $0.42.1Q21 off to slow start (lock-down measures) w/volumes down MSD % through early Feb. More importantly for stock: a) initial FY21 EPS guide slightly better (~$2.15 vs. Street$2.10); and b) worst-case transfer tax outcome ~in-line w/expectations. At 23x P/E, we expect muted + stock reaction,” said Kevin Grundy, equity analyst at Jefferies.

Coca-Cola shares, which dipped about 1% in 2020, rose about 2% in pre-market trading on Wednesday.

Coca-Cola Stock Price Forecast

Nine analysts who offered stock ratings for Coca-Cola in the last three months forecast the average price in 12 months $56.67 with a high forecast of $62.00 and a low forecast of $55.00.

The average price target represents a 14.02% increase from the last price of $49.70. From those nine analysts, four rated “Buy”, five rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $55 with a high of $67 under a bull scenario and $31 under the worst-case scenario. The firm currently has an “Overweight” rating on the soft drink manufacturer’s stock.

“We are Overweight on Coca-Cola (KO) after significant stock underperformance given COVID 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. COVID impacts drove a large -26% organic sales decline in 2Q20, but trends improved to -MSD% in July/August and -LSD% in September/October. We forecast a recovery to 8% organic growth in 2021/2022 with a post-COVID recovery in away-from-home,” said Dara Mohsenian, equity analyst at Morgan Stanley.

Several other analysts have also recently commented on the stock. Jefferies lowered the target price to $53 from $57. Guggenheim cut the price objective to $53 from $55. Coca-Cola had its price target decreased by HSBC to $58 from $61. Deutsche Bank cut shares to a hold rating from a buy and reduced their price target to $55 from $57.

In addition, JPMorgan lowered shares to a neutral rating from overweight and set a $55 price objective on the stock. Wells Fargo & Company started coverage and issued an overweight rating and a $62 price objective on the stock. Royal Bank of Canada lowered shares to a sector perform rating from an outperform and set a $55 price objective on the stock.

Analyst Comments

“Net, we’d expect a bit of a relief rally on low-quality Q4 EPS upside, in-line FY21 EPS guidance, which is likely better than feared, unsurprisingly weaker volume trends so far in 2021 (through February but with easier comparisons starting in March), and lower than expected accruals for tax considerations,” Morgan Stanley’s Mohsenian added.

“We believe Coke‘s LT topline growth outlook is above peers, with strong pricing power, and favourable strategy tweaks under Coke’s CEO, including increased innovation and a cultural shift towards a total beverage company.”

Upside and Downside Risks

Risks to Upside: Quicker than expected recovery of COVID-19, favourable FX movements, greater realized price/mix, higher productivity/cost savings and marketing efficiency- highlighted by Morgan Stanley.

Risks to Downside: Unfavorable resolution of a tax dispute with the IRS, negative FX movements, prolonged impact of COVID-19 on consumer behaviour, emerging markets macro volatility, health & wellness pressures, lower than expected productivity, and sugar taxes.

Check out FX Empire’s earnings calendar