On Tuesday, CFRA, a notable financial research firm, increased its price target on shares of Coca-Cola (NYSE: NYSE:KO) to $72 from the previous target of $68, while reiterating a Buy rating on the stock.
The adjustment comes after Coca-Cola reported a second-quarter adjusted earnings per share (EPS) of $0.84, surpassing the consensus estimate of $0.81. This performance reflects a 7% increase from the reported $0.78 in the same quarter of the previous year.
The positive earnings were attributed to better-than-anticipated sales and profit margins. Coca-Cola's revenue climbed by 3% to $12.36 billion, which was $610 million above the market consensus.
This revenue boost was largely due to a strong price and product mix, which saw a 9% increase, and a 6% rise in concentrate sales. These gains were partially offset by a 6% impact from unfavorable currency exchange rates and other net changes that accounted for a 5% decrease.
The company's gross margin expanded by 210 basis points, reaching 61.1%, which was 50 basis points higher than the consensus forecast. Coca-Cola has also updated its adjusted EPS growth outlook for the year 2024, raising it to a range of 5%-6% from the previously stated 4%-5%. This updated guidance suggests an EPS of between $2.82 and $2.85, aligning with the current market consensus of $2.82.
The revised price target by CFRA is based on a 2025 price-to-earnings (P/E) ratio of 23.6 times, which represents a discount to Coca-Cola's five-year average forward P/E of 24.4 times. CFRA has maintained its 2024 adjusted EPS estimate at $2.85 and increased its 2025 estimate slightly by $0.05 to $3.05.
Coca-Cola shares have been on an upward trajectory over the past several months, reaching a two-year high. CFRA's analysis suggests that there is still potential for the stock to appreciate further as earnings growth is expected to transition from being margin expansion-driven to being more influenced by price and product mix in the upcoming quarters.
In other recent news, Coca-Cola has revised its annual organic sales and profit outlook, projecting a growth of 9% to 10% in organic sales and a 5% to 6% increase in adjusted profit for fiscal year 2024.
This reflects the company's confidence in the ongoing demand for its products in the United States and internationally. In addition, Coca-Cola has been actively safeguarding its intellectual property rights in Russia, despite ceasing operations in the country.
Argus has raised its price target for Coca-Cola shares, citing the company's strategic shift towards diversifying its revenue streams and its innovation strategy as positive factors. However, the rising U.S. dollar index poses a challenge for U.S. corporations, including Coca-Cola, which reported a 9% currency headwind in the latest quarter.
In other developments, Texas's 37th congressional district representative, Lloyd Doggett, has increased his holdings in Coca-Cola, indicating his belief in the company's value and future performance. These developments highlight Coca-Cola's strategic moves and the external factors influencing its operations.
InvestingPro Insights
Following CFRA's optimistic outlook on Coca-Cola (NYSE: KO), InvestingPro data supports the beverage giant's robust financial health. With a market capitalization of $279.03 billion and a solid gross profit margin of nearly 60% in the last twelve months as of Q1 2024, Coca-Cola's financials are indicative of its industry strength. The company's commitment to shareholder value is evident through its impressive track record of increasing dividends, now for 54 consecutive years, which is a testament to its financial stability and management's confidence in sustained profitability.
InvestingPro Tips highlight Coca-Cola's position as a prominent player in the beverages industry with low price volatility, reinforcing its appeal to investors seeking stability in their portfolios. Moreover, the company's high P/E ratio of 25.88, while indicative of a premium valuation, is supported by a consistent dividend growth of 5.43% in the same period, offering a compelling case for long-term investment. For those interested in exploring further, InvestingPro offers additional insights with a total of 12 tips for Coca-Cola, which can be accessed for a detailed analysis.
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