To The Moon

$Coca-Cola(KO)$ , Buffett's king of dividend-paying stocks (with dividends paid and increased for 54 consecutive years), has hit new highs in its stock price, with an 8.5% increase in the past month.

So far this year, the stock has risen by 23.89%, outperforming the annual return of 15.35% for the peer ETF $Consumer Staples Select Sector SPDR Fund(XLP)$ , as well as the 4.53% annual return of its main competitor $Pepsi(PEP)$ .

As of the time of writing, $Coca-Cola(KO)$ has been trading above its 200-day moving average since mid-November 2023.

Coca-Cola Company , headquartered in Atlanta, Georgia, has a market capitalization of $314.663 billion as of Sep 3rd 2024,

Let's examine whether the fundamentals are driving a bullish outlook for the company in the future:

Warren Buffett described in his article "The Superinvestors of Graham-and-Doddsville" that stock prices do not always rationally reflect the value of a business. By comparing the changes in earnings per share (EPS) and stock prices over time, we can sense how investors' attitudes towards a company change over time.

Over the past five years, $Coca-Cola(KO)$ 's earnings per share have grown by 8.4% annually. The growth in earnings per share is more impressive than the 6% annual increase in stock prices during the same period. Therefore, we can conclude that the market has become more cautious about this stock.

The chart below shows the change in EPS over time.

1. The company reported a 3% increase in net income to $12.4 billion for Q2, with EPS at $0.84, beating expectations of $0.81. Organic sales surged 15%, exceeding the anticipated 9.6%.

• Carlos Pagoaga was appointed VP to lead global community affairs and chair the Coca-Cola Foundation. A quarterly dividend of 48.5 cents per share is set to be paid.

• $Coca-Cola(KO)$ has consistently raised its dividend for 54 years, currently yielding 2.71%, demonstrating financial stability and commitment to investors.

• This quarter saw growth in both volume and pricing.

• India is a key growth market, with the company's market share projected to reach 20.53% by 2023.

• Recently, $Coca-Cola(KO)$ committed $1.1 billion to develop generative AI applications in collaboration with $Microsoft(MSFT)$ , aiming to enhance efficiency across marketing, supply chain, and manufacturing.

• The company also updated its compensation packages for employees facing involuntary layoffs or opting for voluntary departure.

Analysts from Morgan Stanley, TD Cowen, Truist Securities and Argus responded positively, raising their price targets for Coca-Cola. Morgan Stanley, in particular, raised its price target to $78 and reiterated its overweight rating, making $Coca-Cola(KO)$ its top pick in the beverage sector.

Conclusion:

$Coca-Cola(KO)$ has generated a total return of 16.7% over the past two years, well below the $S&P 500(.SPX)$ 's total return of 40.9%. This is noteworthy because it helps illustrate that despite $Coca-Cola(KO)$ 's share price just hitting an all-time high and the company's price-to-earnings multiple making the stock look expensive, it has overall underperformed the market over the past few years.

To me, this suggests that the stock is now finding new life, and as Coca-Cola enters a new phase of operating efficiency, low-cost pleasure consumption shouldn't fare too badly under current economic expectations, and KO stock could be a good buying opportunity.

Some deep-pocketed investors are optimistic about $Coca-Cola(KO)$

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