Coca-Cola Q3 2019 Earnings Preview: Is KO Stock Due for a Selloff?

Shares of Coca-Cola KO have climbed over 20% in the last 12 months to blow away its industry’s average and the S&P 500’s roughly 6% jump. Now with Q3 2019 earnings season set to heat up when the big banks start to report on Tuesday, October 15, it’s time to see what investors should expect from the international beverage powerhouse.

Coca-Cola’s Pitch

Coca-Cola doesn’t need much of an introduction anywhere in the world. In fact, Forbes most recently ranked the Atlanta, Georgia-headquartered soft drink company at No. 6 on its list of most valuable global brands, behind only tech names such as Apple AAPL and Facebook FB and two spots ahead of Disney DIS.

The company has spent the last several years continuing to expand beyond sugary drinks amid changing consumer habits. Coca-Cola’s portfolio now includes potential Starbucks SBUX rival Costa Coffee, its investment in upstart Gatorade PEP challenger BodyArmor, and more. Last quarter, Coca-Cola lifted its full-year organic revenue outlook and introduced its first energy drink under the Coca-Cola brand.

 

 

 

 

Other Fundamentals

As we mentioned at the top, KO stock has jumped over 20% in the past 52 weeks and 13% so far this year. Coca-Cola stock has slipped roughly 2% in the last month as the S&P dipped approximately 2.5%. KO stock closed regular trading Thursday at $53.66 per share, down about 4% off its 52-week highs of $55.92.

Therefore, the stock does have some room to run heading into and beyond its upcoming quarterly earnings release, if it is able to impress Wall Street.

Investors can see, however, that KO stock is trading above its three-year median in terms of its forward 12-month Zacks earnings estimates. Coca-Cola rests at 24.1X at the moment, which is above its industry (as it normally is), as well as its own 23.3X median. Meanwhile, KO’s forward price/sales ratio has remained far below its industry’s 15.5X average during the last three years hovering at a 5.9X median, where it sits at the moment.

Coca-Cola also currently pays an annualized dividend of $1.60 per share. This helps the company boast a stellar 2.97% yield at the moment that looks even stronger compared to the 10-year U.S. Treasury note’s 1.67% payout.

 

 

 

 

Outlook & Earnings Trends

Looking ahead, our Zacks Consensus Estimates call for the company’s Q3 sales to pop 15% to reach $9.48 billion, with full-year fiscal 2019 revenue projected to surge 15.7% to touch $36.81 million. We should note that this figure includes acquisitions and divestitures.

For reference, KO’s organic revenue—excluding currency swings, acquisitions, and divestitures—jumped 6% last quarter and company management expects its full-year organic revenues to pop 5%. Peeking further down the line, Coca-Cola’s 2020 sales are projected to pop 4.9% above our 2019 estimate in a sign of stabilized expansion.

At the bottom end of the income statement, KO’s adjusted quarterly EPS figure is projected to dip 3.5% from the year-ago period to $0.56 per share. Meanwhile, FY19’s earnings are set to climb roughly 1%, with fiscal 2020 projected to come in 8% higher than our current-year projection.

Overall, Coca-Cola’s consensus earnings estimates have remained unchanged in the last 60 days. Yet, KO has experienced a few negative estimate revisions for fiscal 2020.

Bottom Line

Coca-Cola is set to report its third-quarter 2019 financial results before the market opens on Friday, October 18. KO stock has clearly been on a solid run recently but rests below its recent highs. The beverage titan’s Q3 earnings are projected to fall and its longer-term negative revisions hold KO at a Zacks Rank #4 (Sell) at the moment.

However, Coca-Cola’s estimates could change heading into next week and change its ranking. In the end, KO stock remains a solid income investment, with an added growth bonus.

Yet playing stocks around earnings is always hard. This means interested investors should likely wait to see how Wall Street reacts before making any moves, unless they can handle the inherent short-term risks.

KO is part of a group of more than 150 companies set to report their quarterly financial results next week, including JPMorgan Chase JPM, Netflix NFLX, United UAL, and other giants (also read: Here's What to Expect as Q3 Earnings Season Revs Up).

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
United Airlines Holdings Inc (UAL) : Free Stock Analysis Report
 
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Pepsico, Inc. (PEP) : Free Stock Analysis Report
 
Coca-Cola Company (The) (KO) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Starbucks Corporation (SBUX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research