Skip to Content
Stock Analyst Update

We Expect Bounceback Year From Coca-Cola in 2021

For investors seeking exposure to a high-quality staple, we currently see a sufficient margin of safety in the stock.

Mentioned:

After rebounding from the March 2020 trough late last year, shares of wide-moat Coke (KO) were again under pressure in recent weeks. This was ostensibly due to an adverse tax judgment, as well as the specter of a structurally higher effective tax rate going forward. Consequently, heading into its fourth-quarter earnings, we think investors were primarily looking for: any inkling as to the magnitude of the potential liability, and visibility into the prospects for the business in 2021. The results were decent (in line on revenue and ahead on earnings relative to FactSet consensus), and while the first quarter is off to a rocky start with renewed on-premises closures, we still believe the commercial backdrop should be favorable as we progress through the year. Regarding taxes, the new disclosures lent credence, we believe, to our standing hypothesis: it is difficult to conjure a scenario where the litigation outcome justifies the destruction in economic value implied by the market. Ultimately, after rolling our model and weighing the puts and takes in near-term guidance, we don't plan to change our $54 fair value estimate. For investors seeking exposure to a high-quality staple, we currently see a sufficient margin of safety in the stock.

Revenue came in at $8.6 billion, down 5% year over year. Organically, sales fell 3%, entirely attributable to price/mix, with flat concentrate volume (three points ahead of unit cases due to extra selling days and the cycling of the Brexit inventory build last year). The narrative around price/mix headwinds, chiefly less away-from-home business (bag-in-box for fountains usually sell at higher price points than concentrate) and lower single-serve business, was consistent with previous quarters. Management guided to high-single-digit organic sales growth for 2021, roughly in line with our forecast, and we see plenty room for upside depending on the contours of recovery (economic, consumer behavior, and so on) throughout the year.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Nicholas Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.