Investors are bracing for slower sales growth again in 2024.
Coca-Cola's (KO 0.35%) stock returns and its business are moving in opposite directions these days. The beverage giant just reported positive operating trends for fiscal 2023, and yet co*ke was among the weakest performers on the Dow Jones Industrial Average for the year. Shares have gained just 2% in the last 12 months compared to the Dow's 19% rally.
Does that performance gap pave the way for market-beating returns for investors willing to buy co*ke stock today? Let's take a closer look.
Sales trends
The biggest knock against co*ke's business is that growth has been less than sparkling. Sure, organic sales gains were 12% in 2023 on top of a 16% spike in the prior year. Yet this past year's increase came almost entirely from rising prices; co*ke's sales volume growth slowed to 2% last year from 5% in 2022. It's not a great sign for future sales trends that shoppers are scaling back on their soda purchases.
That soft momentum will likely continue into 2024 as well. co*ke is calling for organic sales growth to slow for a second straight year, declining to between 6% and 7% gains in 2024. Investors are hoping that the company can get back to double-digit expansion that includes both rising prices and higher sales volumes. For now, though they'll have to accept market share growth in a sluggish industry. Rival PepsiCois calling for just 4% organic sales gains this year.
Profit margins
co*ke is squeezing the most out of its slower growth profile, though, and that's great news for shareholders. Non-GAAP earnings jumped a healthy 16% in 2023 thanks to a combination of cost cuts, rising prices, and higher demand for non-core beverages like sparkling waters and energy drinks.
Those wins helped operating profit margin expand to a blazing 29% of sales, or nearly double PepsiCo's result. "We expect to see margin expansion [in 2024]," CFO John Murphy said in a recent conference call with investors.
Cash returns are another bright spot lifting shareholders' overall returns. co*ke generated about $10 billion of free cash flow in 2023 and returned nearly the same amount to investors through stock buybacks and a rising dividend.
The dividend payment has increased for over 60 consecutive years, giving co*ke one of the longest track records on the market. Cash flow is projected to drop in 2024, but that's mainly because of one-time tax payment issues. The long-term outlook is highly positive for co*ke's cash trends, and so investors can count on further steady dividend growth over the coming years (and decades).
The price cut
Happily, you can pick up co*ke's stock at a relative steal today. Yes, its price-to-sales ratio of 6 is about double PepsiCo's comparable metric. Yet investors were paying over 7 times sales for this business at several points in the past three years. The weak performance of the stock in the past 12 months reduces the risk that you'll pay too high of a price for this company.
Investors have to balance those positive factors against the likelihood that co*ke will report some softer sales trends in the short term. The stock might respond to that sluggishness by staying relatively weak through most of 2024, but that's a small price to pay to gain exposure to one of the strongest consumer staples companies on the planet. co*ke deserves a spot on most investors' watch lists for 2024 and beyond.
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
Fair Value Estimate for Coca-Cola
With its 3-star rating, we believe co*ke's stock is fairly valued compared with our long-term fair value estimate of $60 per share, which implies a 22 times multiple against our adjusted 2024 earnings estimate and a 2024 enterprise value/adjusted EBITDA multiple of 20 times.
Why does Warren Buffett like Coca-Cola stock? ›
In his latest annual letter to shareholders, Buffett referred to Coca-Cola and American Express as "indefinite" holdings. They're companies with especially strong branding and marketing that benefit from long-winded periods of economic growth.
What is the projection for Coca-Cola stock? ›
Stock Price Forecast
The 12 analysts with 12-month price forecasts for KO stock have an average target of 68.17, with a low estimate of 60 and a high estimate of 74. The average target predicts an increase of 7.57% from the current stock price of 63.38.
How much will Coca-Cola stock be worth in 5 years? ›
Coca-Cola stock price stood at $63.14
According to the latest long-term forecast, Coca-Cola price will hit $65 by the middle of 2024 and then $70 by the end of 2025. Coca-Cola will rise to $75 within the year of 2026, $80 in 2027, $90 in 2028, $100 in 2029, $110 in 2030 and $125 in 2032.
Is Coca-Cola stock a good buy now? ›
The highest analyst price target is $72.00 ,the lowest forecast is $58.00. The average price target represents 7.62% Increase from the current price of $63.1. Coca-Cola's analyst rating consensus is a Strong Buy. This is based on the ratings of 13 Wall Streets Analysts.
Is Coca-Cola stock worth buying? ›
Fair Value Estimate for Coca-Cola
Our fair value estimate implies a 22 times multiple against our adjusted 2024 earnings estimate and a 2023 enterprise value/adjusted EBITDA multiple of 19 times. Organic revenue grew 11%, edging our 10% estimate, while adjusted EPS growth of 7% matched our expectations.
How much does Warren Buffett get paid from Coca-Cola? ›
A massive passive income stream
Berkshire currently owns 400 million shares of Coca-Cola. This means that on an annualized basis, Warren Buffett's company generates $736 million in dividend income from the beverage giant. That is a huge passive income stream that likely explains why Buffett isn't exiting the position.
Why invest in Coca-Cola stocks? ›
Key Points. Coca-Cola experienced revenue growth in 2023 with Q3 sales rising 8% year over year. The company made strategic shifts to boost performance, such as cutting the number of brands. Its financials are looking good, including a $636 million year-over-year increase in free cash flow.
Why is Coca-Cola a better investment than Pepsi? ›
co*ke's growth
The beverage titan reported a 12% organic sales boost for 2023 while Pepsi's growth was less than 10%. co*ke benefited from the fact that a high proportion of its sales are in the on-the-go niche -- places like restaurants and sporting events -- which shoppers are prioritizing in the wake of the pandemic.
Will share a co*ke come back? ›
“We're excited to bring back 'Share a co*ke' this year, refreshed with more names and now last names.
Table 2 Global and regional market shares held by Coca-Cola Co and PepsiCo, 2020
| Market share of carbonated soft drink market (excluding bottled water) (%) | Market share of total soft drink market* (%) |
|---|
| Coca-Cola Co | PepsiCo |
|---|
| North America | 38.9 | 18.7 |
| Western Europe | 51.8 | 6.3 |
| World | 46.5 | 10.0 |
5 more rowsYou would have more than doubled your money, with a total investment worth of $2,029.55. That's a 103% return, or a 7.23% annual rate of return. Interestingly, despite co*ke's dominance on the world stage, investing in co*ke's main rival, Pepsi, 10 years ago would have given you more pop for your buck.
What is the prediction for Coca-Cola in 2024? ›
Coca-Cola expects fiscal 2024 organic sales to grow 8% to 9%, compared with its prior forecast of a 6% to 7% rise. First-quarter net revenue rose 2.5% to $11.23 billion, beating LSEG estimates of $11.01 billion. Coca-Cola posted adjusted profit of 72 cents per share, compared with expectations of 70 cents.
Is Coca-Cola stock undervalued or overvalued? ›
Intrinsic Value. The intrinsic value of one KO stock under the Base Case scenario is 51.3 USD. Compared to the current market price of 63.26 USD, Coca-Cola Co is Overvalued by 19%.
What stock is a strong buy right now? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| Emerson Electric (EMR) | 1.39 | Strong Buy |
| Delta Air Lines (DAL) | 1.40 | Strong Buy |
| ServiceNow (NOW) | 1.41 | Strong Buy |
| GE Aerospace (GE) | 1.41 | Strong Buy |
21 more rowsThe Coca-Cola Company's ( KO ) dividend yield is 3.09%, which means that for every $100 invested in the company's stock, investors would receive $3.09 in dividends per year. The Coca-Cola Company's payout ratio is 73.72% which means that 73.72% of the company's earnings are paid out as dividends.
Is Coca-Cola stock recession proof? ›
Coca-Cola Co.
(NYSE:KO) is one of the most popular recession-proof stocks in the U.S., with an attractive dividend payout history. The Dividend Aristocrat pays $1.84 in dividends annually, yielding 3.09% on its current price.
