Due to the continual interest rate hikes by the Federal Reserve over the last twelve months, it has become increasingly likely that the US will head into a recession, likely sometime within the first quarter of next year.
For this reason, investors are rushing toward defensive safe havens to help defend the value of their portfolios. One stock, the Coca-Cola Company (NYSE: KO) is a popular choice for investors looking to weather the incoming storm.
The beverage giant is renowned for its defensive characteristics, which make it a reliable investment during economic downturns. Coca-Cola has a strong, established brand presence and its products are generally less cyclical than other consumer stocks. Furthermore, the company boasts a strong market share and pricing power, which helps protect it from competition and pricing pressures.
Let's examine why some investors are adding stock to their portfolios.
Brand recognition and cash flow
Coca-Cola is a well-known and beloved brand worldwide, and its products are consumed by billions of people daily. This strong brand recognition gives Coca-Cola a competitive advantage over its competitors. Coca-Cola’s brand recognition gives it security that is hard to find in other investments.
Tied into Coke's branding is its steady cash flow, meaning it pays its investors regularly and reliably. This is especially important in a recession when other investments may not be as reliable.
The company has been increasing its dividend for the last 60 years and has a sustainable payout ratio of 69.57%. This means that it's likely it can continue to pay out its dividend into the future.
Diversified product portfolio and strong balance sheet
Coca-Cola also has a diversified portfolio of products, which makes it less likely to suffer from a decrease in demand in any particular sector. In addition, the company has a large presence in international markets, which provides a hedge against economic issues in any particular country.
Finally, Coca-Cola has a strong balance sheet and financial position, which allows it to weather economic downturns more easily than smaller, less well-capitalized companies. This makes it a relatively safe investment in a recession.
The company's long-term debt has fallen steadily over the last several years and has a healthy debt/equity ratio of 1.45.
Global reach and brand loyalty
Coca-Cola has an extensive global reach. The company sells its products in over 200 countries worldwide, giving it access to a wide range of consumers who may not be affected as severely by an economic downturn. This global reach also helps the company diversify its revenue streams, reducing its overall risk of a recession.
Next is its brand loyalty. Consumers have been loyal to the brand for decades. This loyalty has been known to withstand economic downturns, including the global financial crisis (GFC), which saw its yearly revenue grow to $31.9 billion in 2008. This loyalty is further strengthened by Coca-Cola’s marketing campaigns, which focus on nostalgia and positive emotions.
Analysts Set New Price Targets
Several analysts have issued reports on KO shares. Wells Fargo & Company boosted their price target on Coca-Cola from $66.00 to $70.00 and gave the company an "overweight" rating in a report on Thursday, December 8th. UBS Group boosted their price target on Coca-Cola from $63.00 to $68.00 in a report on Wednesday, October 26th. HSBC boosted their price target on Coca-Cola from $72.00 to $76.00 and gave the company a "buy" rating in a report on Tuesday, September 6th.
Wolfe Research began coverage of Coca-Cola in a research note on Tuesday, October 11th. They issued an "outperform" rating and a $63.00 price objective for the company. Finally, JPMorgan Chase & Co. set a $64.00 price objective on Coca-Cola in a research note on Thursday, December 8th. Six equities research analysts have rated the stock with a hold rating, and thirteen have issued a buy rating to the company's stock. According to MarketBeat, the company currently has an average "Moderate buy" rating and a consensus target price of $66.90.
Coca-Cola Stock Performance
The company has a debt-to-equity ratio of 1.45, a current ratio of 1.13 and a quick ratio of 0.95. The business has a 50-day simple moving average of $61.93 and a 200-day simple moving average of $61.33. The firm has a market capitalization of $275.08 billion, a PE ratio of 27.78, a P/E/G ratio of 4.12 and a beta of 0.57.
Coca-Cola last released its earnings results on Tuesday, October 25th. The company reported $0.69 EPS for the quarter, beating analysts' consensus estimates of $0.64 by $0.05. The firm had revenue of $11.06 billion for the quarter, compared to analysts' expectations of $10.60 billion. Coca-Cola had a return on equity of 42.75% and a net margin of 23.44%. Equities research analysts expect that Coca-Cola will post 2.48 earnings per share for the current fiscal year.
Coca-Cola Announces Dividend
The company also recently disclosed a quarterly dividend paid on Thursday, December 15th. Investors of record on Thursday, December 1st, were paid a $0.44 dividend. The ex-dividend date of this dividend was Wednesday, November 30th. This represents a $1.76 annualized dividend and a yield of 2.77%. Coca-Cola's dividend payout ratio (DPR) is currently 76.86%.
Insider Buying and Selling
In other news, Director Herbert A. Allen III acquired 33,200 shares of the company's stock in a transaction that occurred on Friday, October 28th. The shares were bought at an average price of $60.18 per share, with a total value of $1,997,976.00. Following the completion of the purchase, the director now owns 99,054 shares in the company, valued at $5,961,069.72.
The transaction was disclosed in a legal filing with the Securities & Exchange Commission, which can be accessed through this hyperlink. In related news, Director Herbert A. Allen III bought 33,200 shares of the company's stock in a transaction on Friday, October 28th.
The shares were acquired at an average price of $60.18 per share, with a total value of $1,997,976.00. Following the transaction, the director now owns 99,054 shares of the company's stock, valued at $5,961,069.72. The transaction was disclosed in a document filed with the SEC, which is available at this hyperlink. Also, insider Mark Randazza sold 42,068 shares in a transaction on Friday, November 11th. The shares were sold at an average price of $60.86, for a total value of $2,560,258.48.
Following the sale, the insider now directly owns 40,146 shares in the company, valued at approximately $2,443,285.56. The disclosure for this sale can be found here. Insiders have sold a total of 150,014 shares of company stock valued at $9,336,898 over the last quarter. Corporate insiders own 0.98% of the stock.
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; flavored and enhanced water and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. It also offers beverage concentrates, syrups, and fountain syrups to fountain retailers, such as restaurants and convenience stores.
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