The Coca-Cola Company (NYSE:KO) and Coca Cola Hellenic Bottling Co (CCH), both with strong cash flow and steady growth, had received positive upgrades from analysts recently. Both stocks will be analyzed fundamentally and technically in this article. Investing strategies will also be presented.
The Coca-Cola Company
The Coca-Cola Company is the world's largest beverage company and is the leading producer and marketer of soft drinks. KO was up 1.11% and closed at $39.02 on March 14, 2013. KO had been trading in the range of $34.89-$40.67 in the past 52 weeks. KO has a market cap of $173.90B with a very low beta of 0.51.
On March 14, 2013, Credit Agricole upgraded KO from underperform to outperform with a price target of $43.00 (from $40.00), and Bank of America had reaffirmed its current buy rating with a price target of $41 on KO. On March 13, 2013, Wells Fargo maintained an outperform rating on KO and raised its price target to $42.00-$44.00 (from $41.00-$43.00). Analyst Bonnie Herzog thinks the stock deserves a higher premium relative to peers. As quoted from Bonnie Herzog,
Based on KO's current valuation, we believe the market is underestimating KO's long-term growth opportunities and the power of its global bottling network. Therefore, we believe KO's current valuation premium of only ~10% to its peers is too narrow and presents a good entry point for long-term investors.
Analysts currently have a mean target price of $42.23 and a median target price of $42.00 for KO. Analysts are estimating an EPS of $0.45 with revenue of $11.05B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $2.14 with revenue of $49.02B, which is 2.10% higher than 2012.
There are a few positive factors for KO:
- Higher revenue growth (3-year average) of 15.7 (vs. the industry average of 6.2)
- Higher operating margin of 22.4% and net margin of 18.8% (vs. the industry averages of 17.4% and 12.0%)
- Stronger ROE of 28.0 (vs. the industry average of 26.5)
- Lower debt/equity of 0.4 (vs. the average of 0.6)
- Lower P/E of 19.6 (vs. the industry average of 22.2)
- KO generates an operating cash flow of $10.64B with a levered free cash flow of $4.49B
- KO currently offers an annual dividend yield of 2.87%
Technically, the MACD (12, 26, 9) indicator is showing a bullish trend. The momentum indicator, RSI (14), is picking up and indicating a strong buying momentum at 62.24. KO is currently trading above its 50-day MA of $37.60 and 200-day MA of $37.40. The next resistance is $39.39, the R1 pivot point, followed by $40.33, the R2 pivot point, as seen from the chart below.
How to Invest
KO remains a great long-term holding with its solid balance sheet, strong cash flow, and steady growth. Multiple analysts' upgrades confirm KO's strong fundamentals. For bullish investors, a credit put option spread of May 18, 2013 $35/$37.5 put can be reviewed, which will allow investors to gain some upside credit premium or to acquire KO shares at a price below $37.5. Investors can also review the following ETFs to gain exposure to KO:
- Consumer Staples Select Sector SPDR (NYSEARCA:XLP), 10.02% weighting
- Consumer Staples ETF (NYSEARCA:VDC), 9.30% weighting
- Dow Jones U.S. Consumer Goods Index Fund (NYSEARCA:IYK), 8.62% weighting
Coca-Cola HBC S.A.
Coca Cola Hellenic Bottling Co, a Greece-based company, engages in the production, sale and distribution of non-alcoholic ready to drink beverages, under franchise from The Coca-Cola Company. CCH was up 0.84% and closed at $27.74 on March 14, 2013. CCH had been trading in the range of $14.30-$28.10 in the past 52 weeks. CCH has a market cap of $10.07B with a beta of 1.55.
On March 14, 2013, Barclays upgraded CCH from underweight to equalweight. Analysts current have a mean target price of $21.25 for CCH. Analysts are estimating an EPS of $1.23 with revenue of $9.61B for 2013. For 2014, analysts are projecting an EPS of $1.45 with revenue of $10.07B, which is 4.70% higher than 2013.
There are a few positive factors for CCH:
- Lower P/B and P/S of 2.6 and 1.1 (vs. the industry average of 5.0 and 2.4)
- Lower debt/equity of 0.5 (vs. the average of 0.6)
- CCH generates an operating cash flow of $975.69M with a levered free cash flow of $434.87M
Technically, the MACD (12, 26, 9) indicator had turned bullish in the last trading day. RSI (14) is picking up and indicating a strong buying momentum at 64.52. CCH is currently trading above its 50-day MA of $25.39 and 200-day MA of $20.90. The next resistance is $28.03, the R1 pivot point, followed by $29.22, the R2 pivot point, as seen from the chart below.
How to Invest
Compared to KO, CCH is less attractive with its lower revenue growth, lower margins, and lower ROE. However, CCH continues to generate solid cash flow with steady growth. Investors can review the following ETF to gain exposure to CCH:
FTSE Greece 20 ETF (NYSEARCA:GREK), 16.98% weighting
Note: All prices are quoted from the closing of March 14, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.