Coca-Cola Stock Price Up 11.4% in 2022 – Time to Buy KO Stock?

While the broader markets have looked weak in 2022 and the S&P 500 is in the red so far, defensive stocks have outperformed. Berkshire Hathaway, which is led by the legendary value investor Warren Buffett hit its all-time highs recently despite the market sell-off. Beverage giant Coca-Cola (KO) is among the biggest holdings of the conglomerates and Buffett has been holding the position for years now.

Coca-Cola stock is up 11.4% so far in 2022 and is among the top 100 S&P 500 gainers. What’s the forecast for KO stock and should you buy it in April 2022?

Coca-Cola stock recent developments

Coca-Cola released its earnings for the first quarter of 2022 yesterday. The company’s revenues increased 16% to $10.5 billion in the quarter and were significantly ahead of the $9.83 billion that analysts were expecting. Its organic revenues, which is a non-GAAP metric, increased by 18%.

The rise in earnings was driven by a mix of higher volumes and selling prices. Its global unit case volumes increased 8% during the quarter which looks healthy. Price and mix accounted for a 7% rise in net sales. Its concentrate sales also increased 11% in the quarter. KO gained market share in total non-alcoholic ready-to-drink in at-home as well as away-from-home channels.

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Coca-Cola gained market share

Notably, over the last two years, we have seen a change in the sales mix of both Coca-Cola and PepsiCo. The latter outperformed in 2020 as it had a higher share of snacks in its portfolio. As people stayed at home and restaurants were closed for some period during the pandemic, the demand for home snacks rose.

Also, the sales of beverages for in-home consumption spiked in 2020. However, as the economy started to reopen the sales of beverages for out-of-home consumption gained pace.

KO reported better than expected profits

Coca-Cola reported an adjusted EPS of $0.64 in the quarter which was ahead of the $0.58 that analysts were expecting. Despite rising inflation, its operating margins expanded to 32.5% as compared to 30.2% in the corresponding quarter last year. The adjusted operating margin also increased to 31.4% from 31%.

Commenting on the results, James Quincey, Coca-Cola’s CEO said “We are pleased with our first quarter results as our company continues to execute effectively in a highly dynamic and uncertain operating environment.” He added, “We remain true to our purpose and are staying close to consumers. We are confident in our full-year guidance, and we are well-equipped to win in all types of environments as we fuel strong topline momentum and create value for our stakeholders.”

Coca-Cola exited Russia

Like many fellow US companies, Coca-Cola also exited Russia after the country invaded Ukraine. The company said that the decision would lower its revenues and unit volumes by almost 1%. However, it still maintained its guidance and said “We continue to expect organic revenue growth of approximately 7% to 8% and comparable currency-neutral earnings per share guidance of 8% to 10% growth versus 2021.”

The company however cautioned “We are keeping a close watch on the spillover effects of the conflict in Ukraine on the health of the consumer, and we remain ready to pivot and adapt,” said Quincey during the earnings call. It expects to generate free cash flows of $10.5 billion in 2022

KO is offering lower-priced products

Coca-Cola has been offering its products in smaller packaging. While usually such strategies were mostly deployed in emerging markets, the company has been replicating the same even in developed markets amid multi-decade high inflation.

It has also been increasing prices. Commenting on the price hikes, KO said, “You definitely don’t want to get to a point where there’s been a substantial cost push through, and that has not yet been passed on into the marketplace when any recessionary impact appears. Trying to catch up on pricing in a recessionary environment is very hard. And so, we have a bias to action.” The company is also investing in the brand to earn “the right to price the brands.”

The company however said that rising pricing might lead to lower demand in the future. It said that while demand was been largely inelastic, it could get more elastic in the future even as the timing is not certain. The company is looking to minimize elasticity with its RGM (revenue growth management).

Coca-Cola stock forecast

In December, Credit Suisse had named Coca-Cola a top pick for 2022. It had said, “With the pandemic’s worst likely passed, we think Coke is now poised for a period of mid-single,
maybe even double-digit topline growth and high-single digit bottom line growth (ahead of guidance).”

Wall Street analysts are reasonably bullish on Coca-Cola stock and it has 19 buys and eight hold ratings. None of the analyst rates the stock as a sell. Its median target price of $68 is however a premium of only 3.1% over current prices. That said, we could see analysts upwardly revise the stock’s target price.

Jim Cramer is bullish on KO stock

After Coca-Cola’s earnings release, Jim Cramer sounded quite bullish on the company. “Coca-Cola put on a clinic, showing you how a seasoned management team can overcome just about any challenge you might throw at them. That’s long-lasting strength. That’s a great stock to put away,” said Cramer.

He added, “The quarter’s a reminder that sometimes you just want to own the best of breed companies in unassailable positions. … It’s not that Coca-Cola’s got no problems — they’re dealing with the same issues as everyone else — it’s that they’ve been able to safely navigate their way through the thicket.”

Should you buy Coca-Cola stock?

Coca-Cola is among the most popular brands globally. The company has been pivoting its business toward healthier beverages and is also investing in snacks brands. These would help drive the company’s long-term growth.

The stock trades at an NTM (next-12 months) PE of 26.5x which looks reasonable. The stock also pays a healthy dividend yield of almost 2.7%. Looking at the current macro environments, KO looks among the best defensive stocks to have in your portfolio.

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