The Coca-Cola Company KO stock has rolled down 11.3% in the past three months. With this decline, KO shares have underperformed the broader Consumer Staples sector’s dip of 8.2% and the S&P 500’s rally of 2.7% in the same period. However, the company’s shares have slightly outpaced the broader industry’s 12.4% decline.
Coca-Cola's stock performance also reflects outperformance compared with its close competitors, including PepsiCo Inc. PEP and Keurig Dr Pepper KDP, which have lost 16.1% and 14.4%, respectively, in the past three months. Meanwhile, KO shares reflect an underperformance against Monster Beverage’s MNST gain of 0.6%.
KO’s Three-Month Stock Performance
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At the current price of $61.71, the KO stock trades at a 16.1% discount to its 52-week high of $73.53. The current stock price reflects a 6.5% premium from its 52-week low mark. KO trades below its 50 and 200-day moving averages, indicating a bearish sentiment.
KO Stock Trades Below 50-Day & 200-Day Moving Averages
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Challenges Facing Coca-Cola’s Stock Performance
KO’s soft trends in recent months can be attributed to its dismal volume trends across most operating segments. The company highlighted that gains from improved pricing are offset by reduced concentrate sales and unfavorable currency rates, hurting its total sales. Despite exceeding the Zacks Consensus Estimate for earnings and revenues, the company reported a 1% year-over-year revenue drop in third-quarter 2024.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Coca-Cola witnessed soft volume trends in third-quarter 2024, with unit case volume moving down 1% and concentrate sales volume declining 2%. Concentrate sales volume trailed unit volume by one percentage point due to the timing of shipments. Unit volume was impacted by a slow start in July, with additional declines in China, Mexico and Türkiye.
KO remains vulnerable to macroeconomic disruptions. These include low consumer confidence in China, geopolitical and economic challenges in Eurasia and the Middle East, and high inflation in Argentina, all of which could affect revenues.
Management notes that inflation is beginning to stabilize in developed markets, but many developing and emerging markets still face significant inflationary pressures, leading to higher prices. Also, currency fluctuations might pose challenges in certain regions.
Based on the current rates and including the impacts of hedged positions, the company expects currency headwinds to impact 2024 revenues by 5%. Additionally, acquisitions, divestitures and structural changes are expected to negatively impact revenues by 4-5% in 2024. Comparable EPS growth is expected to include headwinds of 9% from currency, and 1-2% from acquisitions, divestitures and structural changes. The company expects most of the currency headwinds to result from currency devaluation due to intense inflation.
KO’s Premium Valuation
Despite the recent decline, Coca-Cola commands a high valuation, reflecting its strong market positioning, brand power and long-term growth potential compared with other non-alcoholic beverage companies. We believe that the stock is overvalued at current levels.
KO trades at a significant premium to industry peers with a forward 12-month price-to-earnings (P/E) multiple of 20.84X. The current valuation is below its five-year median of 23.59X and has surpassed the broader industry’s multiple of 18.98X.
The company’s ability to deliver on its promise of offering something for everyone to drink, with a focus on innovation and digital expansion, is crucial. While success in these areas could further strengthen its market leadership, failure could pose serious challenges for this soft drink giant. At this moment, its current valuation seems unwarranted. KO has a Value Score of D.
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Is KO Well-Poised on Long-Term Growth Plans?
Despite a recent downtrend, Coca-Cola’s strong market presence, marketing expertise and commitment to innovation position it for a recovery. The company is advancing toward its vision of becoming a total beverage company through a resilient all-weather strategy that integrates exceptional marketing, innovative product development, and effective revenue growth management. Its revamped marketing model blends digital, live, and in-store experiences to foster personalized consumer connections.
As part of its innovation efforts, KO has expanded its portfolio to meet evolving consumer demands for healthier options and energy drinks, moving beyond traditional sugary beverages. Its offerings now include vitaminwater, smartwater, Simply juices and Dasani. Successes such as the Real Magic platform, the BODYARMOR acquisition and the launch of Coke Starlight underscore this growth.
The company is also targeting the fast-growing ready-to-drink (RTD) alcoholic beverages market, with plans to launch Bacardi Mixed with Coca-Cola RTD cocktails in 2025, alongside other products like Topo Chico Hard Seltzer, Simply Spiked Lemonade, FRESCA Mixed and the Jack & Coke cocktail.
Confident in its strong portfolio and unique system capabilities, Coca-Cola projects organic revenue growth at the higher end of its 2024 guidance, suggesting a 10% year-over-year increase. It also raised its currency-neutral EPS forecast for 2024, expecting a 14-15% year-over-year rise. The company anticipates relief from inflationary pressures and commodity volatility in 2025, though higher net interest expenses are expected due to tax disputes and pending payments.
KO’s Estimate Revision Trend
The Zacks Consensus Estimate for Coca-Cola’s 2024 and 2025 EPS was unchanged in the last 30 days. However, revenue and EPS estimates for both 2024 and 2025 indicate year-over-year growth.
For 2024, the Zacks Consensus Estimate for KO’s revenues and EPS implies year-over-year growth of 1% and 6%, respectively. The consensus mark for 2025 revenues and EPS indicates 3.98% and 3.8% year-over-year growth, respectively.
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Should You Buy Coca-Cola Stock?
KO's premium valuation, exposure to macroeconomic challenges and persistent inflationary pressures raise concerns among investors. While the company's third-quarter results show a revenue slowdown due to softer volumes, its long-term growth prospects remain strong, supported by innovation, marketing and digital strategies. Coca-Cola’s solid market position and focus on meeting consumer preferences continue to be significant strengths.
Maintaining a position in Coca-Cola stock appears to be a prudent choice at this time. While the company remains a compelling option for long-term investors, its ability to navigate current challenges will be key. Prospective investors should carefully assess its valuation, but for existing shareholders, retaining this Zacks Rank #3 (Hold) stock is a sensible decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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