Investors are bracing for slower sales growth again in 2024.
Coca-Cola's (KO 0.63%) stock returns and its business are moving in opposite directions these days. The beverage giant just reported positive operating trends for fiscal 2023, and yet co*ke was among the weakest performers on the Dow Jones Industrial Average for the year. Shares have gained just 2% in the last 12 months compared to the Dow's 19% rally.
Does that performance gap pave the way for market-beating returns for investors willing to buy co*ke stock today? Let's take a closer look.
Sales trends
The biggest knock against co*ke's business is that growth has been less than sparkling. Sure, organic sales gains were 12% in 2023 on top of a 16% spike in the prior year. Yet this past year's increase came almost entirely from rising prices; co*ke's sales volume growth slowed to 2% last year from 5% in 2022. It's not a great sign for future sales trends that shoppers are scaling back on their soda purchases.
That soft momentum will likely continue into 2024 as well. co*ke is calling for organic sales growth to slow for a second straight year, declining to between 6% and 7% gains in 2024. Investors are hoping that the company can get back to double-digit expansion that includes both rising prices and higher sales volumes. For now, though they'll have to accept market share growth in a sluggish industry. Rival PepsiCois calling for just 4% organic sales gains this year.
Profit margins
co*ke is squeezing the most out of its slower growth profile, though, and that's great news for shareholders. Non-GAAP earnings jumped a healthy 16% in 2023 thanks to a combination of cost cuts, rising prices, and higher demand for non-core beverages like sparkling waters and energy drinks.
Those wins helped operating profit margin expand to a blazing 29% of sales, or nearly double PepsiCo's result. "We expect to see margin expansion [in 2024]," CFO John Murphy said in a recent conference call with investors.
Cash returns are another bright spot lifting shareholders' overall returns. co*ke generated about $10 billion of free cash flow in 2023 and returned nearly the same amount to investors through stock buybacks and a rising dividend.
The dividend payment has increased for over 60 consecutive years, giving co*ke one of the longest track records on the market. Cash flow is projected to drop in 2024, but that's mainly because of one-time tax payment issues. The long-term outlook is highly positive for co*ke's cash trends, and so investors can count on further steady dividend growth over the coming years (and decades).
The price cut
Happily, you can pick up co*ke's stock at a relative steal today. Yes, its price-to-sales ratio of 6 is about double PepsiCo's comparable metric. Yet investors were paying over 7 times sales for this business at several points in the past three years. The weak performance of the stock in the past 12 months reduces the risk that you'll pay too high of a price for this company.
Investors have to balance those positive factors against the likelihood that co*ke will report some softer sales trends in the short term. The stock might respond to that sluggishness by staying relatively weak through most of 2024, but that's a small price to pay to gain exposure to one of the strongest consumer staples companies on the planet. co*ke deserves a spot on most investors' watch lists for 2024 and beyond.
Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
Fair Value Estimate for Coca-Cola
With its 3-star rating, we believe co*ke's stock is fairly valued compared with our long-term fair value estimate of $60 per share, which implies a 22 times multiple against our adjusted 2024 earnings estimate and a 2024 enterprise value/adjusted EBITDA multiple of 20 times.
Should you invest in Coca-Cola now? ›
It offers the best of both worlds: a solid 3.1% starting dividend yield and steady growth, headlined by its 62 years of consecutive increases. Investors who reinvest the dividends and wait patiently have gotten the most out of Coca-Cola stock. The dividend payout ratio is also solid, at 79% of cash flow.
Is Coca-Cola a good stock to buy in 2024? ›
Shares of Coca-Cola have rallied in the first half of 2024. Solid growth and an expanding operating margin are driving profitability. The stock is still reasonably valued and may have more upside.
What stocks are Motley Fool recommending? ›
The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Goldman Sachs Group.
What do experts say about the Coca-Cola stock? ›
Based on analyst ratings, Coca-Cola's 12-month average price target is $67.80. Coca-Cola has 6.69% upside potential, based on the analysts' average price target. Coca-Cola has a consensus rating of Strong Buy which is based on 13 buy ratings, 3 hold ratings and 0 sell ratings.
What is the future of Coca-Cola stock? ›
Stock Price Forecast
The 12 analysts with 12-month price forecasts for KO stock have an average target of 68.33, with a low estimate of 60 and a high estimate of 74. The average target predicts an increase of 8.58% from the current stock price of 62.93.
What if you invested $1000 in Coca-Cola 10 years ago? ›
You would have more than doubled your money, with a total investment worth of $2,029.55. That's a 103% return, or a 7.23% annual rate of return.
Which company is better to invest in co*ke or Pepsi? ›
Outlook and prices. Pepsi is the cheaper stock, but investors might still prefer paying the premium for co*ke over its less expensive rival. Sure, you can own Pepsi for 2.5 times sales, or less than half of co*ke's price-to-sales (P/S) ratio of 5.6. You'll get roughly the same 3% dividend yield in either case.
Is Coca-Cola financially healthy? ›
Coca-Cola Co has the Financial Strength Rank of 6.
GuruFocus Financial Strength Rank measures how strong a company's financial situation is.
Where will co*ke stock be in 5 years? ›
Coca-Cola stock price stood at $62.63
According to the latest long-term forecast, Coca-Cola price will hit $65 by the end of 2024 and then $70 by the middle of 2026. Coca-Cola will rise to $80 within the year of 2028, $95 in 2029, $100 in 2030, $110 in 2031 and $125 in 2034.
If you learn to think like Buffett, you could end up making better decisions with less stress. Coca-Cola (KO 0.17%) is Warren Buffett's longest-held stock and one of his favorites. His holding company, Berkshire Hathaway, first bought shares of co*ke stock in 1988 and owns 400 million shares.
What is the outlook for Coca-Cola stock? ›
Based on short-term price targets offered by 17 analysts, the average price target for Coca-Cola comes to $66.53. The forecasts range from a low of $60.00 to a high of $72.00. The average price target represents an increase of 6.23% from the last closing price of $62.63.
What are Motley Fool's double down stocks? ›
The Motley Fool advises holding onto winning stocks, as they often continue to outperform in the long run. "Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
What are Motley Fool's 5 top AI stocks you can buy right now? ›
See the 10 stocks »
Keithen Drury has positions in Alphabet, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing.
Where will Coca-Cola stock be in 5 years? ›
Coca-Cola stock price stood at $62.18
According to the latest long-term forecast, Coca-Cola price will hit $65 by the end of 2024 and then $70 by the middle of 2026. Coca-Cola will rise to $80 within the year of 2028, $95 in 2029, $100 in 2030, $110 in 2031 and $125 in 2034.
What is a fair price for Coca-Cola stock? ›
As of 2024-06-21, the Fair Value of Coca-Cola Co (KO) is 30.82 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 62.18 USD, the upside of Coca-Cola Co is -50.44%.
What is the highest co*ke stock has ever been? ›
Historical daily share price chart and data for Coca-Cola Consolidated since 1990 adjusted for splits and dividends. The latest closing stock price for Coca-Cola Consolidated as of June 21, 2024 is 995.31. The all-time high Coca-Cola Consolidated stock closing price was 1036.01 on June 11, 2024.
