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Can Coca-Cola’s 1Q16 Earnings Further Boost Its Stock Price?

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Apr. 20 2016, Updated 4:07 p.m. ET

Coca-Cola’s stock has risen in 2016

As of April 13, 2016, Coca-Cola’s (KO) stock had risen by 8.6% to $46.04 since the start of the year. In February 2016, the company beat analysts’ sales and earnings estimates for 4Q15. However, both sales and earnings fell on a year-over-year (or YoY) basis due to the impact of currency headwinds.

The company’s stock price has outperformed its nonalcoholic beverage peers on a year-to-date (or YTD) basis. PepsiCo’s stock (PEP) has risen by 5.4% since the beginning of the year. As of April 13, the stock prices of Dr Pepper Snapple (DPS) and Monster Beverage (MNST) have fallen by 3.1% and 10.7%, respectively, YTD.

Coca-Cola is the second-largest holding of the Consumer Staples Select Sector SPDR ETF (XLP), accounting for 9.5% of the fund. XLP has risen by 6.2% since the start of 2016.

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Earnings expectations

Coca-Cola’s 1Q16 adjusted EPS (earnings per share) are expected to arrive at $0.44, based on analysts’ consensus estimate. This estimate reflects a 7.7% fall from the first quarter of the previous year.

Coca-Cola’s earnings are expected to be impacted by currency headwinds. Coca-Cola’s presence in over 200 countries increases its exposure to adverse currency fluctuations.

For 2016, analysts expect Coca-Cola’s adjusted EPS to come in at $1.94, reflecting a 3% fall YoY. Based on the guidance issued in February 2016, Coca-Cola expects its 2016 comparable currency-neutral EPS growth to land in the 4%–6% range. This estimate includes the impact of 3–4 percentage points of structural headwinds on a comparable currency-neutral pretax income.

Analysts’ recommendations

As of April 13, 14 of out of 29 analysts covering Coca-Cola have “buy” recommendations on the stock. 13 analysts have “hold” recommendations, and two analysts have “sell” recommendations on the stock.

Coca-Cola’s “buy” rating is supported by its strong position in the nonalcoholic beverage market, productivity initiatives, and its efforts to focus on the high-margin concentrates business by refranchising its bottling operations.

However, softness in soda volumes is working against the company. The 12-month price target for Coca-Cola’s stock is $47.41, which reflects a 3% upside potential.

The next part of this series compares Coca-Cola’s valuation with those of its peers.

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