By: Todd McDonald - Analyst
Coca Cola (KO) is slated to report 1Q2013 earnings before the opening bell on Tuesday, April 16. The results are typically released between 7:30 a.m. and 8:00 a.m. EST and will follow with a conference call at 9:30 a.m. Coca-Cola is a member of the Dow Jones Industrial Average (DJIA) often seen as a barometer for the health of the global economy and could therefore impact the index futures when it delivers quarterly numbers.
Outliers And Strategy
- Adjusted Earnings Per Share: Coca Cola typically includes a value for the measure Adjusted Earnings Per Share that is comparable to estimates. The estimate is for earnings of $0.45 per share. The range is $0.43 to $0.46.
- Revenues: Analysts are expecting a decrease in sales of 0.80% from 1Q2012 at $11.05 bln. (Source: Yahoo Finance)
- Unit Case Volume: This is a key metric for Coca Cola. Estimates call for an increase of 2.8%.
- Sympathy Plays: Pepsi Co. (PEP), Dr. Pepper Snapple (DPS), Monster Beverage (MNST)
- Relative Valuation: Coca Cola currently trades at a premium to its competitors Pepsi Co. and Dr. Pepper Snapple at a forward Price to Earnings (P/E) ratio of 19.19, 18.22, and 15.50 respectively.
- Implied Volatility: For the past eight quarters, the average absolute one day move after earnings are released has been 1.58%. Using options premiums, traders are expecting an absolute move of approximately 1.95%.
- 04/12: Davenport & Company downgraded multiple stocks in the beverage industry from Buy to Neutral, including Coca Cola, Pepsi Co. and Dr. Pepper Snapple according to posts on StreetInsider.com.
- 03/28: According to a post on StreetInsider.com, Goldman Sachs issued a report about Carbonated Soft Drinks (CSD) declining 3.4% in the four weeks ending March 16. Coca Cola's sales/volume/price was weak, coming in at -2.5%/-2.9%/+0.5%, respectively. The firm cited poor weather in the first quarter of 2013, especially compared with last year.
- 03/14: Wells Fargo raised its price target range from $42 - $44 from $41 - $43, while reiterating its Outperform rating, according to a post on StreetInsider.com. The firm cited relative valuation and Coca Cola's long-term growth opportunities.
Coca-Cola shares have significantly outperformed the S&P 500 in 2013, hitting 52-week highs and rising approximately 14.42%. The last time we saw shares at these levels was August of 1998, with all-time highs at $44.47. The slope of the 50-day SMA has begun to tick higher after remaining sideways for an extended period. If earnings results surprise to the upside, look for resistance near the recent highs of $41.41. Conversely, should earnings disappoint, look for support at $40, followed by the $39.40 area, which corresponds to the most recent breakout point. (Chart courtesy of StockCharts.com)
Coca-Cola has performed quite well, signaling that most are pricing in a solid report on Tuesday. However, there are concerns that the extended cold weather in the U.S. could impact this quarter's results. Against this backdrop, look for earnings at the top end of the range of analyst estimates to push shares higher. Results at or below Wall Street estimates could trigger a move lower.
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