Coca-Cola (KO) is one of the most popular nonalcoholic beverage companies worldwide. The company’s product portfolio spans sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. The stock has dropped 5.4% over the past month and 2.6% over the past five days to close the last trading session at $52.64. The recent dip can be attributed to the investors shifting toward cyclical sectors with a solid recovery and increasing risk appetites.

However, analysts are optimistic about the stock’s near-term prospects. Out of the 14 Wall Street analysts that rated KO, eight rated it Buy while six rated it hold. The median price target of $62.07 indicates a potential upside of 17.9% from its last closing price.

Here’s what could shape KO’s performance in the near term:

Stable Financials

KO’s net operating revenues increased 42% year-over-year to $10.13 billion in the fiscal second quarter ended July 2. The revenue growth can be attributed to the ongoing recovery in markets where coronavirus-related uncertainty is abating. Its gross profit grew 53% from the year-ago value to $6.34 billion, while its operating income improved 52% year-over-year to $3.02 billion. Net income attributable to the company's shareholders came in at $2.64 billion, reflecting an increase of 48% year-over-year. The company’s EPS increased 48% year-over-year to $0.61.

Solid Growth Prospects

Analysts expect KO’s revenues and EPS to rise 13.1% and 5.5%, respectively, year-over-year to $9.78 billion and $0.58 in the current quarter (ending September 2021). Also, the company’s revenue is expected to rise 15% and 5.7% in fiscal 2021 and fiscal 2022, respectively.

The consensus EPS estimate of $2.26 for the fiscal year 2021 indicates a 15.9% improvement year-over-year. The street expects its EPS to rise 7.5% year-over-year to $2.43 in 2022. Moreover, KO’s EPS is expected to increase at a 10.1% CAGR over the next five years.

Higher-Than-Industry Profit Margins

KO’s trailing-12-month net income margin of 22.19% is 321% higher than the 5.27% industry average. Also, the company’s levered FCF margin is 359% higher than the 4.46% industry average.

The company’s ROE, ROA, and ROTC of 40.67%, 8.96%, and 10.39% are substantially higher than industry averages of 12.05%, 4.65%, and 7.14%, respectively.

Furthermore, its trailing-12-months cash from operations of $12.58 billion is 2,174.8% higher than the industry average of $553.15 million.

Favorable POWR Ratings

KO has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth and Quality. KO’s expected revenue and earnings growth justify its Growth grade. The company’s higher-than-industry average profit margins are in sync with its Quality grade.

Of the 38 stocks in the B-rated Beverages industry, KO is ranked #13.

In addition to the grades I’ve stated above, one can view KO ratings for Sentiment, Value, Stability, and Momentum here.

View other top-rated stocks in the Beverages industry here.

Bottom Line

KO is one of the most popular stocks when it comes to investing in the consumer defensive industry. The stock has been experiencing some pressure since the beginning of 2021 because of the shift toward cyclical stocks. However, it is expected to perform well in the near term based on its solid growth prospects. With a significant global presence and sound financials, KO could prove to be a profitable bet on the recent dip.

How Does The Coca-Cola Company (KO) Stack Up Against its Peers?

While KO has a B rating in our proprietary rating system, one might want to consider taking a look at its industry peers, Coca-Cola Consolidated, Inc. (COKE), Compania Cervecerias Unidas, S.A. (CCU), and Suntory Beverage & Food Ltd (STBFY) which have an A (Strong Buy) rating.

KO shares were trading at $53.11 per share on Wednesday afternoon, up $0.47 (+0.89%). Year-to-date, KO has declined -0.87%, versus a 17.91% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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