Coca-Cola Posts Better-Than-Expected Quarterly Profit; Street Sees 14% Upside

Coca-Cola posted better-than-expected earnings in the fourth quarter, driven by an expansion of adjusted operating margin and prudent cost management. However, the resurgence of coronavirus cases in many parts of the world has kept the beverage company’s global unit case volume trends under pressure.

Coca-Cola’s (KO) 4Q adjusted earnings increased 6.8% to $0.47 per share on a year-over-year basis and beat Street estimates of $0.42 per share. Adjusted net operating revenues decreased 5.5% to $8.6 billion, falling shy of analysts’ expectations of $8.63 billion.

Meanwhile, the company’s adjusted operating margin during the quarter expanded to 27.35% from 24.83% year-on-year. Adjusted gross margin fell 288 basis points to 57.44%.

Coca-Cola CEO James Quincey said, “The progress we made in 2020, including the actions taken to accelerate the transformation of our company, gives us confidence in returning to growth in the year ahead. While near-term uncertainty remains, we are well-positioned to emerge stronger from the crisis, driven by our purpose and our beverages for life ambition.”

For 2021, the company projects adjusted EPS to grow in a high single-digit to low double-digit percentage range, driven by 3-4% favorable currency movements. Organic revenue is anticipated to reflect high single-digit growth. Adjusted net sales are expected to be driven by a 2% to 3% currency tailwind. Free cash flow is expected at $8.5 billion. (See Coca-Cola stock analysis on TipRanks)

Following the 4Q results, Merrill Lynch analyst Bryan Spillane maintained a Buy rating and a price target of $56 (12.9% upside potential) on the stock. The analyst considers the company’s “premium” valuation “justified” compared to “non-alcoholic beverage peers” as he expects Coca-Cola to “emerge from the crisis in a stronger position.”

“As global vaccinations improve and other re-open related stocks begin to outperform,” Spillane believes “there will be a catch up trade for KO shares which have underperformed both peers and the broader market so far this year.”

Wall Street analysts are cautiously optimistic about the stock. The Moderate Buy consensus rating breaks down into 5 Buy ratings versus 5 Hold ratings. The average analyst price target stands at $56.60 and implies upside potential of about 14% to current levels. Shares have increased 5.4% over the last six months.

Coca-Cola scores a 9 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.