By Todd McDonald, analyst
Coca-Cola (KO) is slated to report Q2 2013 earnings before the opening bell on Tuesday, July 16. The results are typically released between 7:30 a.m. and 8:00 a.m. ET and will follow with a conference call at 9:30 a.m. Coca-Cola is a member of the Dow Jones Industrial Average often seen as a barometer for the health of the global economy, and could therefore impact the index futures when it delivers quarterly numbers.
- 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 $0.63 per share. The range is $0.62 to $0.66.
- Revenues: Analysts are expecting a decrease in sales of -0.50% to $13.02 billion (source: Yahoo Finance).
- Unit Case Volume: This is a key metric for Coca-Cola. Estimates call for an increase of 3.5% with a range of 2.3% to 4.4%, according to Zack's Investment Research.
- Sympathy Plays: PepsiCo. (PEP), Dr. Pepper Snapple (DPS), and Monster Beverage (MNST).
- Relative Valuation: Coca-Cola currently trades at a slight premium to its competitors at 18.82 times forward price-to-earnings ratio, vs. Pepsi (18.77x) and Dr. Pepper Snapple (14.91x).
- Implied Volatility: For the past eight quarters, the average absolute one-day move after earnings are released has been 2.14%. Using options premiums, traders are expecting an absolute move of approximately 2.11%
- June 19: According to a post on Benzinga.com, Credit Suisse rates Coca-Cola with an Outperform rating and a $48 price target. Over the next 12 to 18 months, the firm sees upside in Asian and U.S. markets, with improving profit margins and return on invested capital.
- Over the past month or so, there have been rumors of Coca-Cola buying SodaStream (SODA) after the latter canceled their attendance at an Oppenheimer investor conference, according to a post on StreetInsider.com.
- May 22: BMO Capital Markets rates Coca-Cola with a Market Perform rating and a $45 price target, according to a post on Benzinga.com. The firm cites the combination of Coca-Cola's opportunity for growth in emerging markets and distribution infrastructure as positives for shares.
Coca-Cola's shares have marginally underperformed the broader market, rising about 14% YTD. Since early June, the 50-day SMA has acted as a significant technical resistance point, which is currently near $41. Should earnings results surprise to the upside, look for a potential break through this point, with further resistance near $42.50. If results disappoint, look for initial support near $40 followed by $39.50.
Coca-Cola is a classic defensive play, with the benefit of potential upside of emerging market growth in the coming years. The current technical setup should serve as a near-term inflection point, as the upcoming release could cause a failure at resistance or a breakout. Since analysts are predicting a small decrease in revenues, look for an increase along with earnings per share near the high end of the range, and a solid reading for unit case volume to push shares through the aforementioned resistance.
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