Excuses, excuses for Coca-Cola (NYSE:KO)! Chairman and CEO Muhtar Kent came on the line and almost immediately said, "We continue to see further [unrest] in Europe slowing economic conditions across markets like Asia and Latin and social unrest in South East Europe, Middle East and Brazil. On top of this we were faced with unusually widespread wet and cold weather conditions across the multiple regions, including North America and across Northern Europe and India all of which impacted the entire industry." That is the poorest excuse I've ever heard of! In my daily life I normally try avoiding people that just make up lame excuses because they create nothing but disappointment for me, and in the Coca-Cola scenario I want to take a fundamental, financial, and technical look at things to see if we all should be staying away from it, not just me.
Coca-Cola currently trades at a trailing 12-month P/E ratio of 21.38, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.69 is currently fairly priced for the future in terms of the right here, right now. Next year's estimated earnings are $2.31/share. The PEG ratio (2.58), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Coca-Cola is expensively priced based on a 5-year EPS growth rate of 8.3%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Coca-Cola boasts a dividend of 2.74% with a payout ratio of 53.9% based on earnings while sporting return on assets, equity and investment values of 10.1%, 26.7% and 12.3%, respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play then the 2.74% yield of this company is good enough for you to take shelter in for the time being. I certainly don't like a company that is paying out more than 50% of their earnings towards a dividend, but that's just me.
Looking first at the relative strength index chart (RSI) at the top, I see the stock in muddling around in middle ground with a value of 52.58 and no real trajectory up or down. Next, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is above the red line with the divergence bars decreasing in height and the black line moving downwards indicating the stock has downward momentum. As for the stock price itself ($40.84), I see $41.38 acting as resistance and $40.17 acting as support. If the stock can break through resistance I believe it can hit $42.65, and if breaks to the downside of support I see it going to $38.91 providing for a risk/reward ratio of -4.73% to 4.43%. Personally, that is not rewarding enough for me to go buying into it.
- On 16Jul13 Coca-Cola reported earnings per share that were in-line with analysts' estimates at $0.63 but missed on revenue by -1.7% or by $0.22 billion. A miss is a miss by all stretches of the imagination. This is a repeat offense for the company, having missed revenues by $0.01 billion back in April, and yet again back in February by another $0.1 billion. If you want to continue going back, they missed in October 2012 by $50 million.
- Credit Suisse initiated coverage of Coca-Cola back in June with an "outperform rating".
- 2013 is predicted to be an "active" to "extremely active" hurricane season which can prove to be disastrous for orange crops and the makers of orange juice makers such as Coca-Cola. As of now there is a prediction of 3 to 6 major hurricanes and 13 to 20 named storms. If management was blaming the quarterly miss on bad weather, then it will be far worse once the hurricanes start coming through North America.
Other consumer product companies aren't complaining about global macroeconomic issues from the companies I follow. I currently hold Abbott Laboratories (NYSE:ABT) in my portfolio and they said that the Chinese market remains strong for their nutrition lines which are far more expensive than a can of Coke, that's when Abbott is even embroiled in an investigation in China regarding their baby formula pricing. In regard to the weather issue, I quite honestly don't remember the last time I stopped drinking a carbonated beverage in colder weather situations either. I expect better from a company that provides one of the least expensive products in the world. Coca-Cola should diversify itself and buy a company that is moving with the trend of healthy eating in order to bring in more revenue. Coca-cola is fairly priced based off of earnings but is expensive based off of growth potential. Financially, I look for earnings growth to be in double digits and the company doesn't offer that, all the while the dividend payout ratio is greater than 50%. On a technical basis there isn't even a trade that can be made just for a quick gain. After doing a careful analysis on this company I've determined that I wouldn't touch it with someone else's money even.
Disclosure: I am long ABT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are accountable for what you trade and happy investing!