Will a Recent Earnings Release Boost Coca-Cola?

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 recently reported third-quarter and year-to-date 2013 results, with continued global value share gains in total nonalcoholic ready-to-drink beverages. Muhtar Kent, chairman and CEO of Coca-Cola Co., said in the earnings release: “We delivered sound third quarter results in the confines of an ongoing challenged macroeconomic environment driven by increasing volatility across emerging markets. Our global volume grew 2% in the quarter and we continued to grow worldwide value share in total nonalcoholic ready to-drink beverages due to the strength of our portfolio, the diversity of our global footprint and an ongoing concerted focus on marketplace execution. While we saw sequential improvement in the business compared to the second quarter, together with our global bottling partners, we remain constructively discontent and resolutely focused on further advancing our growth trajectory.

T = Technicals on the Stock Chart Are Mixed

Coca-Cola stock has made positive progress over the past several years. However, the stock has been pulling back for most of this year as it digests gains from a recent run. 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 key averages which signal neutral price action in the near-term.

KO

Source: Thinkorswim

Taking a look at the implied volatility 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

18.43%

56%

54%

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

November Options

Flat

Average

December Options

Flat

Average

As of Tuesday, there is 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.

E = Earnings Are Mixed 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

8%

-3.28%

-13.33%

13.92%

Revenue Growth (Y-O-Y)

-2.51%

-2.57%

-0.92%

3.76%

Earnings Reaction

-0.66%*

-1.9%

5.68%

-2.71%

Coca-Cola has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Coca-Cola’s recent earnings announcements.

* As of this writing

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

4.61%

18.53%

-0.70%

4.56%

7.75%

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. A recent earnings release has investors unhappy with the company. The stock has moved higher in recent quarters but has been pulling back for most of this year. Over the last four quarters, earnings have been mixed while revenues have been decreasing, which has produced conflicting feelings among investors. 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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