The Coca-Cola Co. (NYSE:KO) celebrated its centennial as a member of the New York Stock Exchange last year. It’s still going strong, with the KO stock price currently sitting just below the mid-point of its 52-week range.
The company beat earnings estimates by almost 17% on April 21. CEO James Quincey’s admission that syrup sales will be hit by the coronavirus this quarter sent the shares down. But long-term investors were grabbing them in the overnight market, and they closed yesterday near $46 each.
The emphasis here is on long-term investors. Coca-Cola has become a boring company over the years. Over the last five years its average gain is just 14%. But it’s steady, and the dividend is now 41 cents per share. It yields 3.5%. Where else can you get that?
A Buffett Favorite
Coca-Cola’s best-known investor today is Warren Buffett of Berkshire Hathaway (NYSE:BRK.A). He has been in the stock for over 30 years, getting in a few years after the notorious “New Coke” fiasco. It’s his third-largest holding. He drinks about five a day.
Buffett’s initial $1 billion is now worth $22 billion, plus dividends. Coca-Cola has done better than the average NASDAQ stock over the last five years, although it’s down about 5% so far in 2020. That’s why 13 of the 18 analysts tracked by TipRanks say “buy.” They have an average price target of about $55 per share, 20% higher than today.
CEO Quincey, who took command in 2017 with a promise of making Coke tech savvy, has now returned to basics. He admits the supply chain is creaking, but that his managers are adapting. His distribution channels are also changing, with bottling remaining strong but fountain drinks weak.
Right Man, Right Time
What makes Quincey the right CEO for this time is his emphasis on technology. He first focused on technology for meeting demand-side challenges. These include fountains that let patrons mix their own drinks and smaller cans that deliver more profit with less soda.
Now tech is expected to meet the supply side problems as well.
The stock’s weakness after earnings was based on Quincey pulling guidance and admitting that the cancellation of public events will hurt the company. Volumes in April were down 25% and could remain down as public events remain shuttered.
But analysts are starting to see the other side of the crisis. Coca-Cola may be boring, but it’s steady, and right now that’s a huge asset.
Coca-Cola has always been masterful at public relations. This continues today, with the company working on face shields alongside Georgia Tech, which sits next to its Atlanta headquarters tower. Coca-Cola moved 6,000 pounds of plastic sheeting to the campus, to make 50,000 face shields for healthcare workers fighting the novel coronavirus.
Meeting public challenges is what made Coca-Cola great in the first place. Its rise as a global power dates from World War II, when it committed to making its drink available wherever American troops were fighting, at the same price they could get it for at home.
Bottom Line on KO Stock
Coca-Cola’s 44 cents per share of earnings beat its dividend of 41 cents per share of KO stock. It ended March with over $15 billion of cash and short-term investments on its books. The company raised $7.8 billion of cash during the quarter, and operating cash flow was $556 million.
This means Coca-Cola is good for its dividend going forward. The company has hunkered down for a storm and, while operations are being battered, the ship can handle the weather.
There are few places in the market where you can find a yield anywhere near 3.6%. Many are yield traps, based on stock that’s cratering or uncertain cash flows. Coca-Cola is a good place to be in tough times like this.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.