The Coca-Cola Company (KO) is a beverage brand with worldwide recognition and scalability. It has created incredible wealth over the past few decades. The company’s superior pricing power helps its revenue and dividends to grow steadily. KO has paid dividends each year since 1893 and increased its payout for more than 60 consecutive years.
KO is renowned investor Warren Buffett’s longest-held stock, and his company, Berkshire Hathaway (BRK.B), owns nearly 400 million shares of KO for a market value of about $24 billion. This represents about 8% of Berkshire’s total stock portfolio. Given KO’s ability to perform steadily even during an economic slowdown due to its defensive nature and high-yield dividends, it is worth adding this Buffett stock to your portfolio.
Despite the challenges in the operating and macroeconomic environment, the beverage giant reported strong fourth-quarter and full-year 2022 results. The company surpassed analysts’ fourth-quarter revenue and earnings estimates. Its revenue was 2.8% above the consensus estimate, while its earnings beat the analyst estimates by 0.3%.
For the fiscal year 2023, KO expects organic revenue to grow between 7% and 8%. The company expects non-GAAP comparable currency-neutral EPS growth of 7% to 9% and non-GAAP comparable EPS growth between 4% and 5%. In addition, the company expects to generate a non-GAAP free cash flow of about $9.50 billion through cash flow from operations of $11.40 billion.
James Quincey, KO’s Chairman and CEO, said, “As we begin 2023, we continue to invest in our capabilities and strengthen alignment with our bottling partners to maintain flexibility. We are keeping consumers at the center of our innovation and marketing investments, while also leveraging our expertise in revenue growth management and execution.”
“Our growth culture is leading to new approaches, more experimentation, and improved agility to drive growth and value for our stakeholders,” he added.
KO is known as a dividend-paying stalwart. On February 16, 2023, the company announced its 61st consecutive annual dividend increase, raising its quarterly dividend by approximately 4.6% from $0.44 to $0.46 per common share.
KO pays $1.84 as dividends annually, which yields 3.08% at the current share price. This compares to the 4-year average dividend yield of 3.0%. Its dividend payouts have increased at a CAGR of 3.2% over the past three years and 3.5% over the past five years.
Shares of KO have gained 2.2% over the past year to close the last trading session at $59.81.
Here is what could influence KO’s performance in the upcoming months:
Solid Financials
KO’s non-GAAP net operating revenues increased 7.7% year-over-year to $10.20 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP gross profit grew 6% year-over-year to $5.76 billion. In addition, the company’s non-GAAP operating income rose 10.9% from the prior-year quarter to $2.32 billion.
Favorable Analyst Estimates
Analysts expect KO’s revenue for the fiscal year (ending December 2023) to come in at $44.80 billion, representing an increase of 4.1% year-over-year. The consensus EPS estimate of $2.60 for the ongoing quarter indicates a 4.7% year-over-year increase. It’s no surprise that the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Furthermore, KO’s revenue and EPS for fiscal 2024 are expected to grow 5.2% and 7.6% year-over-year to $47.15 billion and $2.79, respectively.
High Profitability
In terms of the trailing-12-month gross profit margin, KO’s 58.14% is 83.9% higher than the 31.61% industry average. The stock’s 28.49% trailing-12-month EBIT margin is 256.6% higher than the industry average of 7.99%. Likewise, its trailing-12-month net income margin of 22.19% is 503.4% higher than the industry average of 3.68%.
Furthermore, KO’s trailing-12-month ROCE, ROTC, and ROTA of 40.51%, 11.16%, and 10.29% compare to the industry averages of 10.12%, 6.20%, and 3.95%, respectively. Also, the stock’s 18.17% trailing-12-month levered FCF margin is 619.2% higher than the 2.53% industry average.
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 higher profitability than its industry peers. Also, the stock’s 24-month beta of 0.59 justifies a B grade for Stability.
In addition, it has a B grade for Sentiment, in sync with optimistic analyst estimates.
KO is ranked #17 out of 36 stocks in the B-rated Beverages industry.
Beyond what I have stated above, we have also given KO grades for Growth, Value, and Momentum. Get access to all KO ratings here.
Bottom Line
Beverage giant KO’s revenue and EBITDA have grown at CAGRs of 4.9% and 4% over the past three years, respectively. Also, its net income has increased at a 2.3% CAGR.
KO’s brand recognition, diversified product portfolio, and global expansion help it generate stable revenues and earnings.
Given its robust financials, high profitability, favorable analyst estimates, and attractive dividends, this Warren Buffett stock could be worth adding to your watchlist.
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) rating: Kirin Holdings Co. Ltd. (KNBWY), Embotelladora Andina S.A. (AKO.B), and Primo Water Corporation (PRMW).
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KO shares were trading at $60.06 per share on Tuesday morning, up $0.25 (+0.42%). Year-to-date, KO has declined -5.58%, versus a 2.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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