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Coca-Cola’s Valuation Fell Due to Bleak Fiscal 2016 Guidance

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Dec. 4 2020, Updated 10:53 a.m. ET

12-month forward PE

Coca-Cola’s 12-month forward PE (price-to-earnings) ratio fell by 3.2% to 22.0x on July 27. The company lowered its guidance for fiscal 2016 organic revenue growth following the disappointing performance in the first half of the year. As of July 27, PepsiCo (PEP), Dr Pepper Snapple (DPS), and Monster Beverage (MNST) were trading at forward PE ratios of 21.7x, 21.3x, and 36.0x, respectively.

The 12-month forward PE ratio is calculated by dividing the company’s stock price by its 12-month expected EPS (earnings per share). It’s influenced by many factors including expected growth, risks and uncertainties, and investors’ willingness to pay for the next four quarters of earnings.

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Fiscal 2016 guidance

Coca-Cola expects its fiscal 2016 organic revenue to rise by 3%. This compares to the company’s previous guidance for organic revenue growth of 4%–5%. Coca-Cola expects acquisitions, divestitures, and structural items to be a 6%–7% headwind on net revenues.

Coca-Cola expects its fiscal 2016 adjusted EPS to fall by 4%–7% compared to an adjusted EPS of $2.0 in fiscal 2015. Currency headwinds, structural changes primarily involving refranchising of the company’s bottling operations, and weakness in soda volumes are expected to drag the company’s performance in fiscal 2016. The Vanguard Dividend Appreciation ETF (VIG) has 3.6% exposure to Coca-Cola.

What do analysts expect?

Following its 2Q16 results, analysts’ fiscal 2016 expectations for Coca-Cola indicate a 4.1% fall in revenue and a 3.5% decline in the adjusted EPS. PepsiCo’s fiscal 2016 revenue is expected to decline by 0.6%, while its adjusted EPS is expected to grow by 4.2%.

Following the 2Q16 results, analysts expect Dr Pepper Snapple’s sales to grow by 1.9% and adjusted EPS to rise by 8.5% in 2016. Dr Pepper Snapple is the third-largest soda maker in the US. Monster Beverage (MNST) is scheduled to report its 2Q16 results on August 4. Currently, analysts expect Monster Beverage’s sales to increase by 11.8%. They expect its adjusted EPS to rise by 31.4%. In June 2015, Coca-Cola purchased a 16.7% stake in Monster Beverage as part of a strategic deal between the two companies.

For more updates, visit Market Realist’s Nonalcoholic Beverages page.

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