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Coca-Cola’s (KO) business took a real beating last year. This is hardly surprising, as much of the fizzy drink giant’s sales are on-premise: at public places where customers buy drinks to quench their thirst immediately.
With vaccines more readily available and consumers out and about in various parts across the globe, Coca-Cola is likely to benefit.
However, with the company set to report 1Q21 results today (Monday, April 19) before the open, J.P. Morgan analyst Andrea Teixeira thinks that while there’s “increasing visibility to an eventual recovery of KO’s business,” given varying lockdown conditions remain across some of the company’s globe-spanning markets, the full recovery might be “more of a H221 event.”
In Coca-Cola’s last business update, the company said that through early February, global volumes had been “tracking down -MSD% (mid-single digit).”
Teixeira believes that since then, trends have likely improved in many regions.
“We think March and April-to-date trends will show sequential improvement, which we believe is what most investors will focus on and it should give increased confidence in KO's back-half-weighted FY21 outlook of +HSD top-line and +HSD-LDD EPS growth,” the analyst noted.
Teixeira expects the bulk of attention is still likely to be focused on “how the company is lapping the early COVID-19 impacts” and how widespread vaccine distribution will affect the business’s recovery. Although the analyst anticipates investors will also be keen to find out how the company performed in the quarter compared to peers and its impact on the company’s plans for the rest of the year.
As for the numbers, Teixeira forecasts Q121 organic revenue decline of -3.0% while the Street has organic revenue decline of -0.6%. The analyst’s Q1 EPS forecast of $0.50 is in-line with the consensus estimate.
“Net,” Teixeira summed up, “With a strong innovation pipeline, organizational structure changes, and broad reopening, we think KO is well positioned to deliver on its HSD top-line and HSD-LDD EPS growth this year, and return to its long-term growth algorithm (+4-6% organic revenue, +7-9% EPS) thereafter.”
However, as the company’s tax dispute with the IRS remains “an overhang in the medium term,” and KO’s valuation is largely in-line with the 5-year average, Teixeira stays on the sidelines with a Neutral (i.e., Hold) rating, backed by a $51 price target. The implication for investors? Downside of 5%. (To watch Teixeira’s track record, click here)
Overall, the rest of the Street has a more upbeat take; the average price target clocks in at $58.5, suggesting gains of 9% over the coming months. Based on 3 Buys and 2 Holds, KO stock has a Moderate Buy consensus rating. (See Coca-Cola stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.