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Coca-Cola (KO) Hits 52-Week High: What's Behind the Rally?

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The Coca-Cola Company KO touched a 52-week high of $56.98, before closing the session a tad lower at $56.70 on Jan 15. Notably, the company is benefiting from its focus on consumer-centric innovation, solid core brand performance and improved execution in the marketplace.

Shares of this Atlanta, GA-based company have increased approximately 9% in the past six months, outperforming the industry’s growth of 3.7%. This Zacks Rank #3 (Hold) stock has also outperformed the Consumer Staples sector that advanced 3.5%.

Factors Narrating Coca-Cola’s Growth Story

Coca-Cola constantly maintains relevance for the Coke brand in the evolving beverage industry through updates to the flagship product and its many variants. To this end, the company continually innovates as well as invests in core categories and brands. This mantra extends to all business aspects, ranging from massive categories like hot beverages to emerging ones like Kombucha.

Constant brand innovation is the key to the company’s sustained growth. Notably, its Coca-Cola Zero Sugar delivered double-digit growth globally for the eighth straight time in third-quarter 2019.

Recently, the company announced a partnership with Hard Rock International. The collaboration is aimed to introduce Coca-Cola's beverage portfolio to Hard Rock Cafes globally, beginning this year. The partnership between this beverage giant and the iconic entertainment, hospitality and dining company will likely present immense growth opportunities.

Notably, Coca-Cola has a solid portfolio of more than 500 sparkling (carbonated) as well as still (non-carbonated) beverages like water, enhanced water, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.

Further, the company is witnessing strong pricing and volume growth. In the third quarter, its price/mix rose 6%, driven by revenue growth management initiatives as well as gains from a favorable geographic mix. Total unit case volume rose 2% in the same quarter on robust growth in developing and emerging markets. Strength in North America, driven by strong demand for Coca-Cola Zero Sugar, also boosted volume.

Backed by strong performance and optimism on volume and pricing, Coca-Cola now estimates organic revenue growth of 5% in 2019. Comparable currency-neutral revenues are now expected to increase 12%, with 7% gain from acquisitions, divestitures and structural items. Comparable currency-neutral operating income for 2019 is now expected to increase 12-13%, marking an improvement from 11-12% growth stated earlier. Acquisitions, divestitures and structural changes will likely continue to positively impact operating income by low-single digits.

Possible Deterrent

Coca-Cola is grappling with adverse impacts from currency fluctuations. Unfavorable currency rates hurt the company’s third-quarter 2019 results. Adverse currency translations impacted earnings by 6%. Further, comparable operating margin included a 260 basis points negative impact of unfavorable currency and net acquisitions.

Moreover, Coca-Cola estimates currency headwinds to persist and impact results in the quarters ahead. In the company’s initial view for 2020, regarding currency impacts, it projected headwinds of 1-2% on comparable net revenues and 2-3% on comparable operating income.

Nevertheless, we believe the company’s aforementioned efforts will offset these hurdles and help it sustain momentum.

Key Picks

Constellation Brands, Inc. STZ has a long-term earnings growth rate of 8.2% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Luckin Coffee LK delivered a positive earnings surprise of 13.5% in the last reported quarter and has a Zacks Rank #2.

Coca-Cola European Partners plc CCEP has a long-term earnings growth rate of 8.9% and a Zacks Rank #2.

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