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By: Brendan Gilmartin

Coca Cola (KO) is slated to report 3Q 2012 earnings before the opening bell on Tuesday, October 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) and is often seen as a barometer for the health of the global economy and could therefore impact the index futures when it delivers its quarterly numbers.

  • Coca-Cola is expected to post EPS of $0.50. The range is $0.49 to $0.52 (Source: Yahoo Finance).
  • Revenues are seen rising 1.1% to $12.38 billion.
  • Unit Case Volume is a key metric for Coca Cola. Estimates call for a mid-single-digit increase.
  • Coca-Cola is seen benefiting from the recent weakness in the U.S. Dollar, given its global exposure.
  • Coca-Cola shares are trading at just over 20x trailing earnings, a slight premium to the 5-year average of 18.7x, and 16.9x forward profits, versus Pepsi (NYSE:PEP) at 15.9x future results.


Recent News

  • 09/27: UBS raised its price target on Coca Cola from $38 to $39, according to StreetInsider.com, due in large part to recent Forex volatility, with the EUR/USD rate climbing from 1.21 in mid-July to a more recent 1.29.
  • 09/13: According to a report on Standard & Poor's, Coca-Cola's long-term corporate credit and senior unsecured debt ratings were increased to AA- from A+, citing "continued strong global operating performance and financial profile amid weak global economic conditions." S&P added that the company maintains a strong financial profile and the outlook remains stable.
  • 08/13: Goldman Sachs lowered its rating on the beverage sector to Neutral, according to Barron's. While the firm anticipates Coca-Cola will deliver strong fundamentals, valuation at the time of this call was a concern and, combined with a tough macro backdrop, may limit upside at these levels.
  • 07/30: Coca-Cola declared a quarterly dividend of $0.255 per share. The company is now yielding 2.68%.


Technical Review

After establishing a 52-week high of $40.67 on July 31, Coca-Cola shares are off about a little more than 6% and hovering just above key support near $38.00 - a level going back to May. Should earnings disappoint, the next area of support is $37.00, with downside risk to the 200-Day SMA near $36.50. Resistance is at $39.00, followed by the aforementioned peak of $40.67. (Chart courtesy of StockCharts.com)

(click to enlarge)

Summary

Coca-Cola shares are coming off the recent highs, due in part to valuation (16.9x forward earnings versus 15.9x at PepsiCo.) and an uncertain global macro backdrop. But with an attractive dividend yield of 2.68%, a positive nod on its debt from S&P (upgraded long-term rating on 9/13) thanks to "continued strong global operating performance," and recent tailwinds as a result of the weak dollar, some are betting that Coca-Cola will deliver solid earnings.

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Source: Coca-Cola Shares At Near-Term Support Ahead Of 3Q 2012 Earnings