Impact of 1Q16 results
Coca-Cola’s (KO) stock price fell by 4.8% to $44.37 on April 20, the day the company announced its 1Q16 results. As discussed in part one of this series, the company beat the consensus analysts’ earnings estimate in 1Q16. However, both 1Q16 earnings and revenue fell on a year-over-year basis.
Also, Coca-Cola experienced weak organic revenue growth of 2% in 1Q16. Investors are now skeptical about the company’s target to deliver organic revenue growth in the 4%–5% range in fiscal 2016.
On a year-to-date basis, Coca-Cola’s stock price has appreciated by 4.6% as of April 20. PepsiCo’s (PEP) stock price has appreciated by 3.7% since the start of 2016. The stock prices of Dr Pepper Snapple (DPS) and Monster Beverage (MNST) have declined by 4.7% and 12.2%, respectively, since the start of the year.
Coca-Cola is the second-largest portfolio holding of the Consumer Staples Select Sector SPDR Fund (XLP), accounting for 9.2% of the fund. The XLP ETF has appreciated by 5.5% since the start of 2016.
Dividends and share repurchases
In 1Q16, Coca-Cola paid a quarterly dividend of $0.35, up 6.1% from the comparable quarter of the previous year. For 2016, Coca-Cola has increased its annual dividend by 6% to $1.40 per share. This marked the 54th consecutive annual dividend increase for the company.
As of April 20, Coca-Cola’s current dividend yield was 3%, which is higher than the 2.7% of PepsiCo and the 2.2% of Dr Pepper Snapple. Monster Beverage currently doesn’t pay dividends.
Coca-Cola also rewards investors through share repurchases, which enhance earnings per share by bringing down the number of outstanding shares. In 1Q16, Coca-Cola made net share repurchases of $155 million. The company aims to make net share repurchases of $2.0 billion to $2.5 billion in 2016.
As of April 20, 13 analysts out of 28 analysts covering Coca-Cola’s stock had a “buy” recommendation and another 13 had a “hold” recommendation. Two analysts have a “sell” recommendation for the stock. Coca-Cola’s extensive international presence and market-leading position in the nonalcoholic beverage industry are factors that work in its favor. However, continued softness in carbonated soft drink volumes continues to dampen its performance.
As of April 20, the 12-month price target for Coca-Cola’s stock price was $47.80, reflecting a potential upside of 7.7%. We’ll discuss the company’s valuation in the concluding part of this series.