Does Coca-Cola Support All-Time Highs?

With shares of Coca-Cola (NYSE:KO) trading around $42, is KO an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Coca-Cola is a beverage company that engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages. Its sparkling beverages include nonalcoholic ready-to-drink beverages with carbonation, such as carbonated energy drinks, and carbonated waters and flavored waters. The company’s still beverages comprise nonalcoholic beverages without carbonation, including noncarbonated waters, flavored and enhanced waters, noncarbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. It also provides flavoring ingredients, sweeteners, powders for purified water products, beverage ingredients, and fountain syrups. Coca-Cola Company sells its products primarily under the Coca-Cola, Diet Coke, Coca-Cola Light, Coca-Cola Zero, Sprite, Fanta, Minute Maid, Powerade, Aquarius, Dasani, Glacéau Vitaminwater, Georgia, Simply, Del Valle, Ayataka, and I Lohas brand names. Consumers around the world love the products offered by Coca-Cola and enjoy them almost on a daily basis. Through its brands, Coca-Cola is able to reach a wide consumer base in just about every corner of the world that will continue to enjoy its products for years to come.

T = Technicals on the Stock Chart are Strong

Coca-Cola stock has seen a significant rise since reaching multi-year lows during the Financial Crisis. Currently, the stock is trading near all-time high prices established in 1998 and may see a strong push above them. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Coca-Cola is trading above its rising key averages which signal neutral to bullish price action in the near-term.

KO

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Coca-Cola options may help determine if investors are bullish, neutral, or bearish.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Coca-Cola Options

17.05%

43%

39%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Coca-Cola’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Coca Cola look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-12.36%

13.92%

4.17%

0.83%

Revenue Growth (Y-O-Y)

-0.92%

3.76%

0.75%

2.73%

Earnings Reaction

5.68%

-2.71%

-0.6%

1.56%

Coca-Cola has seen increasing earnings and revenue figures for most of the last four quarters. From these figures, the markets have generally been pleased with Coca-Cola’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Coca-Cola stock done relative to its peers, Pepsi (NYSE:PEP), Dr. Pepper Snapple (NYSE:DPS), Monster Beverage (NASDAQ:MNST), and sector?

Coca-Cola

Pepsi

Dr. Pepper Snapple

Monster Beverage

Sector

Year-to-Date Return

16.48%

20.94%

8.92%

6.89%

16.74%

Coca Cola has been a relative performance leader, year-to-date.

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Conclusion

Coca-Cola is one of the few global companies that is able to reach and satisfy consumers all over the world in just about every urban and rural area. The stock has had a strong bullish run in recent years that has taken it near all-time high prices. Earnings and revenue have been increasing for most of the last four quarters which has sent positive vibes to investors. Relative to its peers and sector, Coca-Cola has been one of the year-to-date performance leaders. Look for Coca-Cola stock to OUTPERFORM.

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