The Federal Reserve’s resolve to tame the multi-decade-high inflation has resulted in several interest rate hikes this year. Last week, the Fed announced its fourth consecutive three-quarters of a percentage point interest rate hike, taking the target range to 3.75% to 4%, its highest since January 2008.
The Fed hinted at continued rate hikes until it achieves its long-term inflation target of 2%. Many economists have been worried as they fear a recession next year. The major market indexes have fallen significantly this year, with the Dow Jones Industrial Average and S&P 500 falling 8.7% and 19.7% year-to-date, respectively. On the other hand, the Nasdaq composite has declined 32.1% year-to-date.
Investors looking for a recession-resistant stock could invest in beverage major The Coca-Cola Company (KO) due to the almost inelastic demand for beverages. Despite the macroeconomic headwinds, KO delivered impressive third-quarter results.
KO’s revenue beat analyst estimates by 5.7%, and its EPS beat the consensus estimate by 8.3%. The company also pays a healthy dividend, and its financial strength can be gauged from its 59 years of consecutive dividend growth.
On October 20, 2022, the company declared a dividend of 44 cents payable to shareholders on December 15, 2022. Its annual dividend of $1.76 yields 2.95% on the current share price.
The company’s dividend payouts have increased at a 3.1% CAGR over the past three years and a 3.6% CAGR over the past five years.
The company has guided for organic (non-GAAP) revenue growth of 14% to 15% for fiscal 2022. It also expects comparable EPS (non-GAAP) growth of 6% to 7% and a free cash flow of approximately $10.50 billion.
The stock has gained 0.6% in price year-to-date and 5.8% over the past year to close the last trading session at $59.60.
Here’s what could influence KO’s performance in the upcoming months:
Robust Financials
KO’s non-GAAP net operating revenues increased 10.2% year-over-year to $11.06 billion for the third quarter ended September 30, 2022. Its non-GAAP gross profit increased 6.5% year-over-year to $6.54 billion. The company’s non-GAAP net income increased 6.7% year-over-year to $3.01 billion. Also, its non-GAAP EPS came in at $0.69, representing an increase of 6.2% year-over-year.
Favorable Analyst Estimates
Analysts expect KO’s EPS for fiscal 2022 and 2023 to increase 6.9% and 2.4% year-over-year to $2.48 and $2.54, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 10.4% and 2.5% year-over-year to $42.67 billion and $43.75 billion, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, KO’s 58.49% is 79.2% higher than the 32.63% industry average. Likewise, its 31.96% trailing-12-month EBITDA margin is 159.8% higher than the industry average of 12.30%. Furthermore, the stock’s 28.90% trailing-12-month EBIT margin is 240.7% higher than the industry average of 8.48%.
POWR Ratings Show Promise
KO has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. KO has a B grade for Quality, consistent with its high profitability.
It has a B grade for Sentiment, in sync with its favorable analyst estimates. Its 0.58 beta justifies its B grade for Stability.
KO is ranked #21 out of 34 stocks in the A-rated Beverages industry. Click here to access KO’s ratings for Growth, Value, and Momentum.
Bottom Line
Amid the macroeconomic uncertainty, KO reported strong earnings and guided for a strong end to this year. With a recession expected next year, KO could be a good choice for investors due to its almost inelastic demand, strong balance sheet, and stable dividends.
How Does The Coca-Cola Company (KO) Stack up Against Its Peers?
KO has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Beverages stocks with an A (Strong Buy) or B (Buy) rating: Suntory Beverage & Food Limited (STBFY), Kirin Holdings Company, Limited (KNBWY), and PepsiCo, Inc. (PEP).
KO shares were trading at $59.11 per share on Wednesday afternoon, down $0.49 (-0.82%). Year-to-date, KO has gained 2.06%, versus a -19.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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