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Is Coca-Cola Stock a ‘Buy’ before Q3 Earnings?

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  • Coca-Cola is scheduled to announce its third-quarter earnings on Friday.
  • The company’s organic sales will likely stay strong, which reflects higher pricing and a favorable mix.
  • The EPS could remain pressured.
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Coca-Cola’s third-quarter earnings

The Coca-Cola Company (KO) is scheduled to report its third-quarter earnings on Friday. Analysts’ consensus estimate indicates that the company’s top-line growth rate could accelerate more in the third quarter. However, the EPS could fall on a YoY (year-over-year) basis.

We think that the company’s revenues could benefit from higher organic sales. Increased pricing, a favorable mix, and volume growth in developing and emerging markets could drive the company’s organic sales. Sustained momentum in the sparkling soft drinks category will likely support the top line led by Coca-Cola Zero Sugar.

PepsiCo’s (PEP) third-quarter organic sales also benefitted from higher pricing. The company’s organic sales increased 4.3%.

Despite strong sales growth, Coca-Cola’s earnings could remain suppressed in the third quarter. Analysts’ EPS estimate indicates that the company’s adjusted EPS could decline. Currency volatility and the acquisition could hurt the company’s operating margins. Meanwhile, higher interest expenses and an increased tax rate could remain a drag on Coca-Cola’s earnings. Also, the higher outstanding share count could drag the EPS down.

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Analysts’ expectations

Analysts expect Coca-Cola to post revenues of $9.45 billion—growth of about 14% YoY. The expected growth rate indicates a sequential acceleration. During the last reported quarter, Coca-Cola’s top line increased about 6%. The company’s organic revenues rose 6% in the second quarter due to a 4% increase in concentrate sales and a 2% contribution from the higher pricing and mix.

Analysts expect Coca-Cola to post adjusted earnings of $0.56, which implies a YoY decline of about 3%. An increase in third-quarter interest expenses and the higher outstanding share count will likely hurt Coca-Cola’s earnings. Analysts expect the company’s interest expenses to increase 8.5% YoY.

Earlier this month, PepsiCo announced stronger-than-expected third-quarter earnings. The company’s revenues of $17.19 billion beat analysts’ estimate of $16.93 billion and increased 4.3% YoY. PepsiCo’s third-quarter EPS of $1.56 also beat the consensus estimate of $1.50. However, the EPS fell 1.9% YoY. Increased commodity costs and higher advertising and marketing investments remained a drag.

Analysts’ recommendation for Coca-Cola

Analysts have a positive outlook on Coca-Cola stock. Notably, most analysts recommend a “buy.” Among the 25 analysts covering Coca-Cola stock, 13 recommend a “buy,” while 12 recommend a “hold.”

Analysts’ consensus target price of $57.48 on Coca-Cola stock implies an upside of 7.5% based on its closing price of $53.49 on Wednesday.

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