Three large-cap stocks with defensive nature will be presented in this article. The Coca-Cola Company (KO), Waste Management Inc. (WM) and Sysco Corporation (SYY) all have solid balance sheet and generate strong cash flow. These three companies can be reviewed to increase the dividend return and better withhold the potential market corrections as compared to other high beta stocks.
The Coca-Cola Company
The Coca-Cola Company is the world's largest non-alcoholic beverage company, which owns or licenses and markets more than 500 non-alcoholic beverage brands, including Coca-Cola, Diet Coke, Fanta, Sprite, Dasani, Powerade and Minute Maid. KO has one of the widest moats in the consumer beverage industry, and the company is well positioned to take advantage of the strong international growth through its diversified brands and extensive distribution network. KO closed at $38.91 with 1.56% gain on February 7, 2013. KO had been trading in the range of $33.71-$40.67 in the past 52 weeks. KO has a low beta of 0.50. The current annual dividend yield is 2.62% for KO.
Analysts, on average, are expecting an EPS of $0.44 with revenue of $11.55B for the quarter ending in December, 2012. Analysts are also estimating an EPS of $2.00 with revenue of $48.14B for the fiscal 2012. In the last 4 quarters, KO had 1 positive surprise and 3 in-line results. KO is expected to announce the Q4, 2012 earnings on February 12, 2013 at 9:30AM.
Fundamentally, KO has an enterprise value of $186.46B with a market cap of $174.52B. KO has a total cash of $18.08B with a total debt of $32.74B. KO generates a strong cash flow of $10.51B with a levered free cash flow of $6.42B. KO has a higher revenue growth (3-year average) of 13.4, as compared to its industry average of 6.2. KO has higher operating margin of 22.1%, ttm, and net margin of 18.5%, ttm, comparing to the averages of 17.4% and 12.0%, ttm, respectively. KO's ROE is the same as the industry average of 26.5. KO's P/E of 20.0 is lower than the industry average of 20.3 but higher than KO's 5-year average of 17.7. KO's forward P/E of 15.8 is higher than S&P's average of 14.0.
Technically, the MACD (12, 26, 9) indicator is showing bullish trend with the diverging MACD difference. The momentum indicator, RSI (14), is indicating a strong buying momentum at 70.77, where above 70 is considered as over-bought. KO is currently trading above its 50-day MA of $37.32 and 200-day MA of $37.53, as seen from the chart below.
Waste Management Inc.
Waste Management Inc. is the largest integrated waste services provider in the U.S., operating 271 active landfills and 294 transfer stations. Waste Management is a developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. Its customers include residential, commercial, industrial and municipal customers throughout North America. WM closed at $36.55 with 1.25% gain on February 7, 2013. WM had been trading in the range of $30.82-$37.98 in the past 52 weeks. WM has a low beta of 0.56. WM currently offers 3.89% annual dividend yield.
WM has dominance in the landfill with a simple business model, generating strong cash flow. WM is expanding in the area of waste-to-biofuel while continue to grow its earnings. On February 4, 2013, WM Recycle America, LLC, a subsidiary of WM, acquired Greenstar, LLC, which includes 12 material recovery facilities that managed approximately 1.5 million tons of recycled material in 2012. Waste Management customers will have greater access to recycling solutions, and the acquisition expands Waste Management's already extensive recycling network.
Analysts, on average, are expecting an EPS of $0.60 with revenue of $3.44 for the quarter ending in December, 2012. Analysts are also estimating an EPS of $2.10 with revenue of $13.60B for fiscal 2012. In the last 4 reports, WM had one positive surprise and one negative surprise. WM is expected to report Q4, 2012 earnings on February 14, 2013.
Fundamentally, WM has an enterprise value of $29.77B with a market cap of $16.96B. WM has a total cash of $398M with a total debt of $10.03B. WM generates a strong cash flow of $2.45B with a levered free cash flow of $661.62M. WM has zero revenue growth (3-year average), which is better than the industry average of -22.2. WM has higher operating margin of 14.1%, ttm, and net margin of 6.3%, ttm, as compared to the averages of 13.2% and 6.0%, ttm, respectively. WM has higher ROE of 14.0, comparing to the average of 9.7. WM's P/E of 19.5 is lower than the industry average of 30.0 but higher than WM's 5-year average of 17.0. WM's forward P/E of 13.0 is lower than S&P 500's average of 14.0.
Technically, the MACD (12, 26, 9) indicator is showing a slightly bearish trend with converging MACD difference. RSI (14) is showing a strong buying momentum at 70.23 where above 70 is considered as over-bought. WM is trading above its 50-day MA of $34.42 and 200-day MA of $32.97, as seen from the chart below.
Sysco Corporation is the largest North American food service distributor, controlling 17.5% of the estimated $225 billion market. The company provides products and related services to approximately 400,000 customers, including restaurants, healthcare and educational facilities, lodging establishment and other foodservice customers. SYY closed at $31.53 with 0.32% gain on February 7, 2013. SYY had been trading in the range of $27.05-$32.40 in the past 52 weeks. SYY has a low beta of 0.70. The annual dividend yield is 3.55% for SYY.
On February 4, 2013, SYY reported increased earnings for the second quarter, beating analysts' estimates. SYY reported Q2 earnings of $221.37M or 38 cents per share. Excluding special items, earnings for Q2 were 49 cents per share, up from 47 cents last year and beating analysts' expectations of 41 cents. As reported by Zacks,
Sysco's sales grew 5.4% on a year-over-year basis to $10.8 billion in the second quarter of fiscal 2013, driven by 2.8% volume growth (including acquisitions). Acquisitions contributed 1.1% to sales growth, while currency translation increased sales by 0.3%. Second quarter sales also beat the Zacks Consensus Estimate of $10.7 billion. Gross profit increased 3.9% to $1.9 billion, driven by strong sales. Adjusted operating income increased 4.6% in the quarter to $485.7 million, despite higher adjusted operating expenses.
Fundamentally, SYY has an enterprise value of $21.18B with a market cap of $18.46B. SYY has a total cash of $320.80M with a total debt of $3.11B. SYY generates an operating cash flow of $1.25B with a levered free cash flow of $717.94M. SYY has revenue growth (3-year average) of 4.8, as compared to the industry average of 2.2. SYY has higher operating margin of 4.3%, ttm, and net margin of 2.6%, ttm, as compared to the averages of 4.2% and 2.4%, ttm, respectively. SYY has higher ROE of 23.2, as compared to the average of 22.0. SYY's P/E of 17.2 is lower than the industry average of 59.2 but higher than SYY's 5-year average of 15.0. SYY's forward P/E of 14.2 is higher than S&P 500's 14.0.
Technically, the MACD (12, 26, 9) indicator is showing a slightly bearish trend. RSI (14) is nearly neutral at 50.67. SYY is trading above 200-day MA of $29.69 but only barely hanging above its 50-day MA of $31.49, as seen from the chart below. It is important to watch if SYY can sustain above its 50-day MA to determine its short-term trend.
In short, all three stocks are solid for long-term hold. However, with the upcoming earnings for KO and WM, conservative investors should consider establishing the long-term positions after the earnings release to avoid additional volatility. For SYY, it is important to watch out for its short-term technical development and see if the stock break below or hold above its 50-day MA.
Note: All prices are quoted from the closing of February 7, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.