Where Will Coca-Cola Go Post-Earnings?

With shares of Coca-Cola (NYSE:KO) trading around $37, 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. Its sparkling beverages include carbonated energy drinks, carbonated waters, and flavored waters. The company’s still beverages comprise nonalcoholic beverages like non-carbonated waters, flavored and enhanced waters, non-carbonated energy drinks, juices and juice drinks, ready-to-drink teas and coffees, and sports drinks. Coca-Cola Co. sells its products 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.

Coca-Cola Co. on Tuesday reported full-year and fourth-quarter 2013 results. Muhtar Kent, chairman and CEO, said: “2013 was marked by ongoing global macroeconomic challenges in many markets around the world. And while our business was not immune to these pressures leading to moderated global volume growth, we delivered sound financial results in line with our long-term profit targets and gained global value share in total nonalcoholic ready-to-drink beverages as well as global volume and value share in core sparkling and still beverages for the year.

“While we move forward in what remains an uncertain global economy, the long-term fundamentals driving our business and industry have not changed. A rising middle class, greater urbanization and increasing personal consumption expenditures in markets around the world will continue to drive greater demand for our beverages as consumers look for moments of refreshment. As we work to restore momentum in our business during 2014, we see many reasons to believe we can accelerate our growth and achieve our 2020 Vision. We are committed to accelerating marketing investments in our brands, further advancing our innovation strategies and maximizing productivity and reinvestment for growth.”

T = Technicals on the Stock Chart Are Weak

Coca-Cola stock has made positive progress over the past several years. However, the stock is currently puling back and may need time to consolidate. 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 below its rising key averages, which signals neutral to bearish 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.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Coca-Cola options

17.28%

23%

20%

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

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

As of Tuesday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish 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 Decreasing 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-7.32%

8%

-3.28%

-13.33%

Revenue Growth (Y-O-Y)

-3.62%

-2.51%

-2.57%

-0.92%

Earnings Reaction

-3.54%*

-0.65%

-1.9%

5.68%

*As of this writing.

Coca-Cola has seen decreasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased optimistic about Coca-Cola’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

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

Coca-Cola

Pepsi

Dr Pepper Snapple

Monster Beverage

Sector

Year-to-Date Return

-9.07%

-5.99%

3.1%

5.61%

-2.58%

Coca-Cola has been a poor relative performer, year-to-date.

Conclusion

Coca-Cola is an iconic company that provides beverage products through its recognized brands to consumers and companies in just about every country worldwide. The company on Tuesday reported full-year and fourth-quarter 2013 results. The stock has moved higher over the past several years but is currently pulling back. Over the last four quarters, earnings and revenues have been decreasing, which has left investors optimistic about recent earnings announcements. Relative to its peers and sector, Coca-Cola has been a weak year-to-date performer. WAIT AND SEE what Coca-Cola does this quarter.

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