Coca-Cola (KO) recently reported its Q4 results, revealing revenues above and earnings in line with street estimates. The company's revenue stood at $10.85 billion, while earnings reached $0.49 per share on a per-share and adjusted basis. These figures exceeded the consensus estimate of $10.68 billion and $0.49, respectively.
However, despite these positive results, there are concerns about tepid volume growth and the impact of higher inflation on consumer spending. As a result, many analysts believe that Coca-Cola's stock has limited room for growth from its current level, hovering around $60.
When looking at the performance of KO stock over the past three years, it has shown little change, moving slightly from $55 at the beginning of 2021 to its current level. In comparison, the S&P 500 has seen an increase of about 30% during the same period, indicating that Coca-Cola has underperformed the index.
Even heavyweight Consumer Staples sector stocks such as Walmart (WMT), Procter & Gamble (PG), and Costco (COST), as well as megacap stars Google (GOOG), Tesla (TSLA), and Microsoft (MSFT), have struggled to consistently beat the S&P 500 in recent years. However, the Trefis High-Quality (HQ) Portfolio, consisting of 30 stocks, has outperformed the index each year over the same period. This suggests that, as a group, the HQ Portfolio stocks have provided better returns with less risk.
Given the current macroeconomic uncertainty, including high oil prices and elevated interest rates, it is uncertain whether Coca-Cola will face a similar situation as it did in 2021 and 2023 and underperform the S&P 500 over the next 12 months. From a valuation standpoint, there seems to be little room for growth. Trefis estimates Coca-Cola's valuation to be $65 per share, representing only a 9% upside.
The company's Q4 performance showed a 7% year-over-year increase in revenue, with organic sales up 12%. This growth was driven by a 9% rise in price/mix and a 3% increase in concentrate sales. However, the North America segment volume was down 1%, mainly due to higher inflation and changes in consumer spending behavior. Despite these challenges, Coca-Cola's adjusted operating margin expanded by 40 basis points to 23.1% in Q4 compared to the same period the previous year.
Looking ahead, Coca-Cola expects organic revenue growth of 6-7% and adjusted EPS growth of 4-5% in 2024. While the company appears to be on a positive trajectory, it is worth examining how Coca-Cola's peers fare on various key metrics.
In conclusion, while Coca-Cola reported solid Q4 results and expects positive growth in the coming year, there seems to be limited room for stock price appreciation. Furthermore, considering the performance of other industry peers, it is essential to weigh the potential risks and rewards when considering an investment in Coca-Cola.
