Why Did Coke Stock Go Up?

A recent Kantar study listed Coca-Cola Co (NYSE: KO) in the top ten most valuable brands in the world for 2023.

Even though Coke stock has the backing of big-time investors like Warren Buffett, KO share price has struggled lately. Coca-Cola shares have delivered just a 32% return over the past 5 years, underperforming the S&P 500’s 58.8% 5-year return. The stock’s struggles have continued into this year, with KO down 3.22% year-to-date.

But Coke shares jumped 6% in July in anticipation of the company’s second-quarter earnings release. Coke ended up beating revenue and EPS estimates, though the stock still sold off a bit after earnings. 

So is Coke stock a buy?

Why Did Coca-Cola Stock Go Up?

KO stock went up because the strong second quarter led the company to raise its guidance for the rest of 2023. In Coke’s 2nd quarter of 2023 earnings report, the company reported a net revenue year-over-year increase of 6%, beating analysts’ estimates by 1.83%.  EPS grew 34% to $0.59, beating estimates by 8.14%.

Net income of $2.55 billion was up 33.7% from 2022, and it’s remarkable because the company’s operating margin slightly decreased from 20.7% in 2022 to 20.1% in the 2nd quarter. Despite the margin decrease, the company created revenue growth from consumer demand.

Cash flow from operations was another positive, with Coke bringing in $4.6 billion so far in 2023. That’s an increase from last year by $83 million. Investors also appreciate the company’s dividend, which currently pays out $0.46 per share per quarter. Coca-Cola’s annual dividend yield is 3.02%.

Coca-Cola’s P/E value is over 25. While that may be on the high side, it’s lower than the rest of the beverage industry that’s trading over 30 times earnings. The company’s increased sales and earnings, as well as its dividend, are the main reasons why KO went up.

Is Coke a Good Stock To Buy Now?

Coca-Cola has been around since the 1800s and it’s been a publicly traded company for over 100 years. But that doesn’t mean it’s a good stock to buy today. Investors who associate the company with its sugary carbonated flagship beverage may wonder if Coke can connect with consumers who want healthier drinks.

The company reported flat case volume in the 2nd quarter of 2023 compared to last year, which is a sign that demand is stable. While volume in the US did decline slightly, the company made strides in Mexico that compensated for it. The suspension of Russian operations also impacted the company, but Coke had more robust sales in India and Brazil.

The suspension of business in Russia also impacted the company’s milk and juice volume through brands like Minute Maid and fairlife, however demand for the beverages in China and the US made up for it.

The water, tea, coffee, and sports drink segment is a big driver for the company’s future. Coke owns both the Powerade and BodyArmor sports drinks brands, and demand dropped 3% in the 2nd quarter. Still, coffee sales made up for it, with the Costa brand of coffee picking up steam in the UK and India.

Is Coca-Cola a Good Long-Term Stock?

Even though the company’s brands have ups and downs, Coke has been able to protect itself through a diverse portfolio of global beverage brands. That portfolio and the company’s long history of success are a strong testament to Coke’s ability to withstand any future headwinds.

Still, the top brass at Coke aren’t content to rest on their laurels. The company announced new award-winning initiatives in the second quarter. These include a rebrand and a new marketing campaign for the Minute Maid brand with the slogan “Filled with Life.”  There are also new product launches for the brand like Minute Maid Sparkling in China.

Another key to long-term success will be adherence to sustainability best practices. The company plans to reduce carbon emissions by 25% by 2030. It also joined with its bottling partners to create a $137.7 million venture capital fund designed to analyze Coke’s carbon footprint and reduce it. 

How High Will Coke Stock Go?

Analysts agree the stock will go up over the next 12 months, but they’re split on just how much. The most bullish analyst has the stock soaring 24.8% to $76. The median forecast predicts KO will gain 16.6% over the next year and hit $71. The most bearish analyst still sees the stock increasing, but only 3.4% to $63.

Out of 24 analysts who’ve given ratings on KO, 19 believe the stock is still a buy at this price, with 6 analysts predicting Coke shares will outperform the market. Five analysts rate the stock as hold, but there are no sell ratings on KO.

Why Does Warren Buffett Like Coca-Cola Stock?

Warren Buffett may be the most famous investor of all time, and his fondness for Coke is no secret. The billionaire investor first bought KO in 1988, with a $1 billion investment that netted him 6.2% of the company. Buffett bought in because KO stock price sank during the 1987 stock market crash.

Buffett saw an opportunity to buy a solid company with an established brand at a discount. Since then Buffett has continued to invest in the company, increasing his stake in Coke to 400 million shares, representing around 8% of the company.

The same reason Buffett bought KO in the 80s is the same reason investors bought the stock last month. Coke isn’t going anywhere anytime soon, and the company has continued to acquire new brands and adapt to keep itself at the forefront of the industry.

By our analysis, fair value for KO shares sits at $63 per share.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.